I’ve heard from a lot of people regarding my blog post from Tuesday – – if you haven’t read it go here to get up to speed. As promised what follows are my proposals that would dramatically stimulate job growth in America.
I propose Phase II – – a “Small Business Growth Act of 2009” to jumpstart our economy into the future. Let’s start by incentivizing investments into new and successful small businesses. President Obama stated on the campaign trail that waiving capital gains for those investing in small businesses was noble public policy. But sadly, this provision was missing in the recent stimulus bill. So many politicians claim to be for small businesses, yet so many seem missing when real progress is needed (we saw this recently with our politicians including cuts in fees for SBA loans in the stimulus bill when it was an access to capital problem, not a cost of capital problem that should have been addressed).
If they’re really serious about developing new job growth markets and supporting innovative small businesses, then this idea of a “free-pass” on small business capital gains needs to become law. On a trial basis (and for the tax revenue-loving legislators to stomach it), we need to waive capital gains taxes permanently for those investors that make equity investments into start-up firms or successful small firms (those with revenues currently less than $100 million) in calendar year 2009. The reason for only limiting it to 2009 investments is that we need private-sector investments NOW, not in 2010 – plenty of cash already sits on the sidelines, but it needs to be put back to work and in the right areas where it will do the most good. Enacting this gives investors, who have lost hope in Wall Street and Big Business investments (where they have virtually zero control), the incentive to put their dollars to work in places where they may have a far greater influence. And if a significant amount is invested, as I believe it would be, our legislators can always extend this provision into 2010, as it is the kind of public policy that always leads to increased tax revenues over time (it’s an acknowledged fact of the Laffer curve).
We’re still spending money to bailout ancient (by today’s standards) companies that are shedding jobs, yet doing nothing for growing firms that are adding jobs. We’re essentially propping-up failure at the expense of strengthening success. This is bad pubic policy. If job creation is what we want, then make it law that small firms hiring new employees in 2009 get a $10,000 tax credit per new hire. At a million new jobs, this only amounts to $10 billion dollars – a veritable bargain compared to the “deal” taxpayers got for bailing out AIG, Bank of America or Citibank. Since millions more with jobs would generate tremendous economic activity and tax revenue, wouldn’t this seem like the thing to do now? Again, doing so only for this year (with an option for next year as it proves itself) stimulates immediately, not later.
Including a payroll tax holiday in this new Small Business Growth Act of 2009 for the remainder of this year would keep money in workers’ pockets and owners’ pockets. This equates to about 16% of compensation saved and immediately gives both parties more money to spend or invest.
My first three suggestions involve tax cuts or credits, but I’d also suggest four additional fixes to SBA lending that needs to be included in this new Act: eliminate the duplicity that exists between their two primary loan programs; increase competitive bidding by the federal government of non-toxic, SBA-guaranteed secondary market debt; raise the current $3 billion limit on the new 100% 1st mortgage-guaranteed SBA 504 loans to $10 billion and make it available for new SBA 504 loans as well; and raise the newly-enacted $250,000 “goodwill” limit on 7(a) business acquisition financing.
By making SBA 504 loans the only source for commercial real estate financing within SBA programs, this frees-up additional capital for 7(a)’s to finance start-ups and working capital. This also helps the small business community by taking away the “dirty little secret” in SBA lending whereby lenders promote inferior loans for commercial real estate purchases to unsophisticated small business borrowers because more fees can be made from those. By having the government competitively bid for SBA-guaranteed debt, it will help thaw those secondary markets that are so critical for bank liquidity and getting capital flowing again. Plus, purchasing these assets should generate positive returns for taxpayers as they have historically. By raising the cap on new 100% 1st mortgage-guaranteed 504 loans, you incentivize lenders to thaw-out their SBA lending and have both programs fairly operate close to the new 90% to 100% guarantee levels. By raising the newly created cap on goodwill financing back to original levels, the SBA can get back to previous levels of business acquisition financing standards, rather than reign-in this critical source of funding when it is most needed. Banks simply won’t finance business acquisitions for small businesses with SBA guarantees.
There you go. Washington needs solutions… and I’ve just given them seven new ones that would jolt America’s small business community into creating even more jobs so desperately needed right now. Will our leaders in Washington have the courage to draft and pass more meaningful and relevant legislation right on the heels of the ARRA? Will they recognize the societal changes underway toward more entrepreneurialism? Or are they just content rearranging the deck chairs on a fateful, sinking ship? Urge them on for more positive, productive change. We cannot afford anything less.