By: Rhonda Abrams
January 29, 2010
I'm guessing someone on President Obama's speech-writing staff knows something about search-engine optimization because the president used the phrase "small business" no less than 14 times in his State of the Union speech Wednesday.
The president knows he has to help small business if the economy is going to recover. He made four major proposals directed at small business in his speech:
1. A tax credit for creating new jobs or raising wages.
2. $30 billion to community banks.
3. Zero capital gains on investment in small companies.
4. Tax incentives for investing in new plants and equipment.
And he discussed health insurance reform -- which has a major impact on small companies. Let's take a look at them and see what needs to be done to make them really work:
1. Tax credit for creating new jobs or raising wages. In the past, the president has suggested a one-time $3,000 tax credit for creating a new job. Some have said this won't be enough to motivate hiring. Instead, I'd suggest a larger amount over a number of years -- perhaps 25% of the first year's salary, 15% the second, 10% the third.
Moreover, I've advocated for a substantial (25% to 33%) tax credit for hiring your very first employee. More than 20 million businesses have no employees, and a big tax credit for hiring your first employee would get a substantial number of these to finally take the step toward long-term growth.
The president also mentioned a tax credit for raising wages. Do this carefully. I've given good wages for years, and I'm not going to be happy to see a miserly business owner get a tax windfall for finally doing what I've done all along.
2. $30 billion in Troubled Asset Relief Program (TARP) money redirected to community banks to get them lending to small businesses. That's a nice carrot for the banks, but it has to be accompanied by federal monitoring to see that the money actually gets out to small businesses. This policy needs:
• Easy paperwork, fast decisions. An earlier program last year failed because there was just too much red tape.
• Mandatory loan distribution. When money was given to big banks, they used it to pay down their own debt and buy up assets, not to make loans. Let's not make the same mistake. Require a substantial portion (all?) to be actually given out in loans.
• Small-business definition. During the last administration, we saw abuses of SBA loans being used to bail out big corporations. Require reporting on the size of each company getting loans and require loans to a complete range of small companies -- from the very smallest micro-businesses (needing perhaps a few thousand dollars) -- to companies with a maximum of 100-500 employees.
3. Zero capital gains tax on investments in small businesses. I'm all for this. For small companies that are seeking investment, it'll definitely get the attention of wealthy, private individuals, who are the primary investors in small companies (other than family and friends), and who are tax savvy. It will also better reward those entrepreneurs who are starting businesses with a well-deserved tax break for creating new companies and new jobs. Make sure the law applies to those who've had S corporations or LLC's and not just C corporations.
4. Tax incentives for investing in new equipment. This is the go-to regulation every president --Republican and Democrat-- embraces, allowing companies to write off, rather than depreciate, more equipment purchased. It helps the largest "small" businesses buy the big stuff they were going to buy any way. (Are you going to increase your equipment expenditures from $125,000 to $250,000 this year?)
5. Health care reform. Health care costs are a huge problem for small companies. We need real cost containment. What I fear happening is what happened in 1993: a few Band-aids put on a very sick system and costs continuing to skyrocket. There's talk that insurance companies will have to eliminate pre-existing condition exclusions and lifetime maximums, but without serious cost controls, who'll be able to afford insurance? How about allowing small companies to buy into Medicare?
I'm hopeful that small business will get meaningful legislative attention in the coming year, but we need bold proposals, not just timid tinkering.
Rhonda Abrams is president of The Planning Shop, publisher of books for entrepreneurs. Her newest book is Hire Your First Employee: the entrepreneur's guide to finding, choosing, and leading great people. Register for Rhonda's free business tips at www.PlanningShop.com. For an index of her columns, click here. Twitter: twitter.com/RhondaAbrams. Copyright Rhonda Abrams 2009.