What The Stimulus Bills Would Do

By Marc Tracy

Assuming a joint House-Senate stimulus bill is eventually agreed upon, passed, and then signed by President Obama--whose missteps in guiding this legislation through are documented well here, among other places--then the federal government will end up spending somewhere in the neighborhood of $800 billion through a combination of tax cuts and spending in an effort to jolt the economy out of its current contracting slumber. The debate over how well this will work dominates D.C. But will it help the country's small businesses?

Survey says: not really. The proposed stimulus has received a heap of criticism from entrepreneurs and from the small business community, who say the proposed legislation does not contain nearly enough targeted specifically to help them--the New York Times quotes an International Franchise Association spokesperson estimating that only .05% of the House bill concerns small-business lending programs, with the Senate's version only slightly better. And the legislation is specifically hit for its alleged likely failure to create enough jobs to compensate for rising unemployment in the nation as a whole and at small- and medium-sized firms in particular.

What does the stimulus bill have? Independent Street had a nice rundown of the House version when it was passed late last month. Its passage would allow small businesses to receive cash refunds in exchange both to offset current losses (these are the so-called "carry back" rules we covered here) and in exchange for tax credits for which they are not eligible should they not be bringing in enough money. Companies that have received credits for such things as clean energy would be allowed to exchange these for cash. At the time the House bill was passed, small business groups acknowledged what the bill did while insisting it was not enough; so, in fact, did the Senate Small Business & Entrepreneurship Committee.

Now that the alternative Senate bill has been largely hammered out, Sen. Mary Landrieu (D-La.), the new head of the Small Business Committee, laid out her grounds for support for the bill, Sharon McLoone reports. The main thing the Senate bill appears to add is the elimination of fees associated with Small Business Administration-backed loans, which have been in freefall.

Specifically, according to this release, the bill would temporarily eliminate fees associated with the SBA's most popular lending program, the 7(a), to the tune of half a billion dollars; it would also eliminate fees associated with the agency's 504 loans, estimated to cost another $100 million. Elimination of these fees could lead to as much as $20 billion in new small-business loans, the committee estimates. Finally, the bill attempts to grow the agency's burgeoning microloan program by investing $6 million in it. It also has $10 million for oversight. McLoone reports that the committee's ranking member, Sen. Olympia Snowe (R-Me.)--generally a crucial figure for passage of the stimulus--has been working to make these additions stick.

If that sounds like better-than-nothing but also not-that-much, then you agree with the National Federation of Independent Business's new head, Dan Danner (yes, that is his name). He weighs in with one of the interest group's patented "The Voice of Small Business" columns. "These provisions are a good start, but in the current economic climate, it's simply not enough," he argues.

He proposes a six-month payroll tax holiday, expensing laxness that is "sustained and meaningful"--extending the bill's allowance for the expensing of up to $250,000 in equipment investment into 2009 and 2010. The payroll tax notion is an especially intriguing idea. On the one hand, we're hesitant about further straining an entitlements program that is already in crisis; on the other hand, it is heartening to see the NFIB, a generally conservative outfit, proposing to cut the most regressive of all taxes.

One thing does seem clear: while we can and should quibble over just how much small businesses are getting out of this deal--and it seems to us that the answer, quite plainly, is "not enough"--a stimulus is desperately needed right now. A while ago, John Tozzi argued forcefully for the importance of the federal government's going into further debt in order to spend more (and perhaps cut taxes more) in order to juice the faltering economy; those warning against the government's spending any money at all right now are to be dismissed.

The NFIB recently conducted a poll--there's the "voice of small business for you"--and guess what? One third of small business owners say the recession has significantly affected their business for the worse; and additional one quarter say it has threatened their very survival.

For all our talk about fixing the SBA's loan programs, expanding expensing, tax credits, government investment, and the rest, the real name of the game, at this point, is demand: people need to have enough money to buy things, and enough confidence to borrow money to buy more things, if the economy--and all the small businesses dependent upon it--is going to get running at an acceptable speed again any time soon. Since the days of the Great Depression, John Maynard Keynes, and the New Deal, we've known that the best way to stimulate demand is to have the government provide it at the outset. What we're trying to say is that, at this point, while we wish the current bills did more for small businesses, we'll take pretty much anything so long as it is passed and implemented very, very speedily. Congress, Mr. President: your turn.

Comments (1)

February 9, 2009 9:32 AM