THE BLOG
09/08/2011 05:02 pm ET Updated Nov 08, 2011

Go With What Works

If you had a great running back, wouldn't you design your plays around him to win the game? Then why aren't we?

Over the past twelve months as our nation has tried to recover from the recession, over 1.6 million private sector jobs have been created through the sheer grit of small businesses; during the same period, large firms and major corporations generated only 50,000 jobs. I know who I would hand the ball to as the real engine of job growth. And yet, as Congress reconvenes this week and the President makes his jobs speech, it is almost certain that once again very few plays will be designed for our star running back.

It's hard to understand why. In normal times, small businesses create 80 percent of new jobs; and today, they are generating 99 percent of all private sector jobs, with large firms doing almost nothing. One would think that it makes sense to target tax breaks and easier access to investment capital for those companies actually creating jobs, and to pay for it by reducing the subsidies of those that don't. Unfortunately, we have a tax code skewed the other way, written by and for large businesses.

And yet, the job discussion in Washington today is principally about tax reform for corporations, not small business. There are calls for reducing the U.S. corporation tax rate; still others argue for tax-free repatriation to America of the billions in profits these same corporations have made in foreign markets. Yet, corporations are already sitting on $2 trillion cash right here in America, but they are still not investing it in American job growth. If the corporation tax rate is lowered, why not at least close the tax loophole that allowed the corporations to avoid paying U.S. taxes when they kept their overseas profits overseas, reinvesting them in their factories in China or Germany where they had moved jobs, rather than in America?

In contrast, small businesses are paying some of the highest taxes around. Double-taxed on their income for Social Security and Medicare, they also pay some of the highest profit tax rates. They also lack special tax deals, such as the 15 percent 'carried interest' tax subsidies for hedge fund managers, even though they also put their own financial and intellectual capital at risk.

Rationalizing the tax code so the nation's real job creators are the true beneficiaries of the changes is what is needed for a much more rapid job recovery. Imagine the impact: 99.9 percent of all firms are small businesses; they employ the majority of Americans; and they produce 13 times more patents per employee than large businesses. How can those who claim to be on the side of the working family not be on the side of small business, and the opportunity to do the right thing for our economy?

Rugged, innovative, small businesses have fought through the earliest and the roughest parts of this recession: very small firms of less than 20 employees were the first to experience job losses by the middle of 2007 as their banking loans and other lines of credit were the first to tighten up; and then they lost over half of all jobs during this recession.

Just like today, small businesses carried the ball and soaked up the majority of unemployed during the 1992 and 2003 recoveries. But now, sitting in the luxury boxes watching the game are corporations that are flush with cash and record profits. It is both unhelpful and disingenuous that they are not invested in the game of job creation with their cash reserves when they are also asking that their profits earned overseas be brought home tax-free for "investment purposes."

I spoke with a small businessman last week with a perfect credit record who has been ready to use a dozen mortgage-free commercial properties as collateral for a new real estate venture. Yet, no local, regional or nationwide bank will lend to him for job growth. He is far from alone. Meanwhile, cash held by U.S. banks is at a record high; awash with deposits from uneasy investors in Europe, some of the 25 largest lenders with $4.7 trillion in deposits are asking regulators to soften rules or waive fees to park their excess cash at the Federal Reserve, rather than to have to lend the money.

If job creation for Americans is our real goal, and not large companies' bottom line, the data over the past twelve months has sent a strong message: small businesses are the real engine of job growth and should be the focus of any policy to spur job acceleration. Yet the sole job creator for the team is encumbered with higher taxes on his earnings than those corporations that have free luxury seats, two thirds of whom pay zero corporate tax. To design plays around our star player means closing many of the tax entitlement loopholes and useless spending subsidies of large firms that don't spur job creation.

If one looks at the facts, the solution to job generation is both simple and effective. In this case, it is past time for us to try it.

Admiral Joe Sestak was a Congressman (PA-07) from 2007-2010, serving as Vice Chairman of the Small Business Committee. He holds a PhD in Political Economy and ran for the U.S. Senate in 2010.

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