Bacons Rebellion

There’s disturbing news this month from America’s principal creators of new jobs—our small businesses.

According to a new National Small Business Poll: Access to Credit, fully one-quarter of small business owners fear the current economic downturn threatens their very ability to survive.

The poll, published in December by the National Federation of Independent Business Research Foundation, showed that 45 percent of small business owners said that slow or lost, sales is their most immediate problem. Other NFIB data noted that 50 percent reported falling profits.

Without sales, there are no profits. Without profits, entrepreneurs lose the ability to invest and grow their businesses, create new jobs and lead the way out of the current recession, as small businesses have done in the past.

Efforts to provide additional credit, whether it is encouraging bank lending or government loan guarantees, are not likely to be of much help to small business owners. The poll showed that business owners who report they can’t get credit are typically unable to absorb any more debt.

The government should instead consider ways to stimulate the economy to instill confidence and boost sales for small businesses.

The best way to accomplish that goal is for Congress to pass a six-month payroll tax holiday as part of any economic stimulus package. This action would free up cash for new investments and boost sales by putting more money in the hands of small business owners to invest in their businesses, and by giving employees more of their own money to spend wherever they see fit.

Unlike investments in infrastructure, which take time to trickle through the economy, suspending the payroll tax would have an immediate effect. A hiatus on the 6.2 percent tax for employers would decrease the cost of labor and will help employers keep people working. A payroll tax holiday would also directly help lower- and middle-income taxpayers by increasing their paycheck by 6.2 percent—the portion of Social Security and disability insurance tax paid by workers.

Another important reason to suspend the tax is to improve profitability. The payroll tax is levied on businesses regardless of whether they are making a profit or not. For the many small business owners who are currently struggling to keep their heads above water, this tax holiday could mean the difference between surviving and going under.

Historically, one bright spot in tough economic times has been the creation of viable, exciting new businesses. William Hewlett and David Packard famously started Hewlett-Packard during the Great Depression. Sun Microsystems, Compaq Computer, Adobe Systems, Silicon Graphics and Lotus Development all began in 1982, when unemployment was at its highest level since World War II.

Many times, people who have been laid off decide to pursue the dream of owning and operating their own businesses, and we expect this downturn to be no different. Congress can help these entrepreneurs by increasing the start-up cost tax deduction from the current $5,000 to $20,000. Increasing the amount creates an immediate cash boost and will provide more money to individuals looking to replace a lost job by creating a new business.

Small businesses represent about 99 percent of all American employers, about 50 percent of our nation’s Gross Domestic Product and historically create about two-thirds of all net new jobs. They are ready, willing and able to lead an economic recovery, and Congress should do everything in its power to help them.