By Nathaniel Gurien
Business tax cuts create or maintain jobs, and only indirectly, when businesses with ready access to capital, i.e., large publically-traded companies, are confident of increasing demand. In this economy, most businesses share the same “crisis of confidence” as consumers, so are unwilling take speculative risks by increasing their costs until demand is obvious and demonstrable.
Small businesses in today’s economy are effectively barred from access to fresh capital, so they have no discretionary money to hire people and/or purchase equipment, even if they have a productive, recession-proof business model in place. A six-percent reduction in payroll taxes, or accelerated depreciation on equipment is useless if there's little to no capital or financing available.
Especially in the North Country, small business is the primary engine of permanent job creation (as opposed to the temporary jobs created by infrastructure projects).
As written, the ‘jobs’ bill making its way through Congress will do little to help small businesses create jobs and grow community prosperity.
While the President’s proposal to invest the $30B of repaid TARP funds in community banks to bolster small business lending may help on the margins, small business borrowers would still be subject to these regulated banks’ ‘risk-adverse’ lending standards and reserve requirements. The many small businesses throughout NH that I’ve spoken with know well what I’m referring to.
What would have an immediate positive effect would be for small businesses with sound business plans that emphasize job creation to have access to lending. This could be accomplished on a fast-track utilizing the existing local infrastructure of SBA/SCORE to review and polish viable business plans combined with lending via the actively functioning network of non-profit small business investment & development corporations in the North Country and throughout NH.
Since the capital would be provided as a loan, the ultimate net cost to the taxpayer would be comparatively low.
Typically, at an average of $50,000 per business loan, a small business would on average create about 5-10 jobs @ $30,000 per year (gross w/benefits), with a resulting additional annual gross payroll of $150,000 to $300,000. To put this into a national perspective, $30B in repayable loans would roughly create upwards of $200B in new annual payroll, or 6,000,000 permanent new jobs. How many permanent new jobs has the so-called $800B ‘stimulus’ bill created or saved even according to the most optimistic estimates? And how much of that is being repaid?
Each new job increases the quality-of-life for several family members as well as the job-holder. Their increased spending in their communities lifts the prosperity and confidence of other local small businesses, and well as friends and neighbors. And of course, productive small businesses spend money in their communities for supplies, services and charitable works.
If this initiative was implemented, a tangible measure of optimism would grow among both consumers and businesses countering the prevailing economic pessimism that is at the heart of this ‘Great Recession’.
Taxpayers would receive an extraordinary ‘bang-for-the-buck’ with a comparatively tiny net investment, and demonstrable job creation and renewed confidence would be felt by summer's end.