Wednesday, November 9, 2011

Is the American Jobs Act good for Small Business?

This article was originally published in Small Business Trends, and written by Rohit Arora. He was named "Top Entrepreneur of 2011" by Crain's New York Business. Rohit is CEO of Biz2Credit.

While President Obama urged Congress to pass his $447 billion jobs bill combining tax cuts and new government spending, skepticism remains as to whether the package could kick-start the stalled economy and if it would indeed pay for itself as the President promised.

President Obama’s “American Jobs Act” proposals include a 50 percent cut in payroll taxes, incentives for businesses to hire returning veterans and people who have been unemployed for more than six months, and new spending on America’s infrastructure. The President said that the proposals would not increase the growing federal deficit, and that he has ambitions for long-term deficit reduction through spending cuts.

Although the President’s intentions are good, the plan is unlikely to have the intended effect and may not even pass Congress. The plan is well intentioned, but a little off the mark.
  • The number-one issue right now is empowering entrepreneurs to start small businesses. To do that, they need capital. but banks simply aren’t lending. Many big banks have reserves on their books. President Obama should take a page out of Ronald Reagan’s 1987 playbook and vow to increase taxes on assets that are sitting idle if the banks do not reach certain small business lending plateaus.
  • Although the President insisted that his proposals would pay for themselves, he did not say how. There is a high likelihood that the measures will add to the growing government deficit, which puts a burden on the economy and small businesses in particular.
  • When government revenues don’t match its spending, it looks to increase revenue. My fear is that small business owners will suffer. Entrepreneurs don’t have lobbyists like big corporations do and thus are less likely to sway government leaders against taxing their businesses.
  • Providing incentives for hiring returning soldiers is a worthy and sincere aspiration. However, the reality is that many veterans do not have the job skills to compete in today’s technology-driven economy. Any proposals should include some sort of training for veterans so that they can develop marketable skills – a 21st century G.I. Bill, so to speak. When people have skills they get hired. The same applies to long-time unemployed workers. Editor's Note: What are your thoughts? Is Rohit off base on this point? Is not the training our soldiers receive often technology-driven? Is it applicable to the civilian job market? That may be a legit question, but there is certainly not a lack of job skills such as dedication, hard work, discipline, and team work!
There are three things the President should have suggested, but did not:

1. Provide incentives for small business lending. Tax incentives for hiring are nice, but if you don’t have capital to launch the business, they do no good.
2. Encourage foreign direct investment into new businesses. China has been very good at this. New companies create jobs. Editor's Note: The views expressed in this article are those of Rohit and do not necessarily represent the views of us or small business.
3. Focus on reducing the deficit, which is a time bomb. Who will be most likely to pay the piper? Small business owners, who don’t have lobbyists and are an easy target for higher taxes and increased fees. (It won’t be the poor or the big corporations that pay.) A large government deficit limits access to capital for the private sector in general and small businesses in particular, as they do not have access to public markets. The deficit is exactly the opposite of what small businesses need to help bring America out of its stagnant economy.

President Obama is correct in saying, “Ultimately, our recovery will be driven not by Washington, but by our businesses and our workers.” In order to do that, small businesses need an environment in which they can grow. He also was right when he admitted that people cannot wait 14 months until the next Presidential election for the economy to turn around. While the new measures would likely spur employment (currently at 9.1 percent) and some growth, they are not enough to solve the country’s economic woes.

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