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Vos E-Update - Small Business Startups Key to Economic Recovery...

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Small Business Startups Key to Economic Recovery.... So Where are They?
Over the past few weeks, I've seen an increase in headlines stating that America's economy is close to working its way out of recession, and starting to show signs of recovery. The story today in theMilwaukee Journal Sentinel reporting consumer spending is up is definitely an illustration of this point. If recovery is truly just around the corner, this is great news.

But a component of a strong economy is a low unemployment rate, and there seem to be no signs of recovery where job creation is concerned. According to the Bureau of Labor Statistics, 16.8% of Americans are unemployed or underemployed, including those who have simply stopped looking for work. Since the recession started, this country has lost 7 million jobs. Still, the Obama administration and Democrats in Congress continue to point to the economic stimulus package as the panacea that will save all jobs.

But what about creating more jobs to counteract the ones we've already lost? The answer to that lies in small business startups. Unfortunately, little is being done to stimulate small business growth.

While "too big to fail" companies are the ones that have benefitted the most from the stimulus, small businesses (who employ 50% of America's workforce, contribute 38% of GDP and create 80% of all new jobs) have effectively been hamstrung from even getting off the ground. Since we're in a recession, no one can be surprised that small business starts have declined. But we should be concerned that the decline is the steepest of any recession in recent history.

Of course, the decline can be attributed to the credit crunch. Credit card lines, which most small businesses rely on, have been cut by over $1.25 trillion in the past two years. Some predict that because of the recently passed federal Credit Card Accountability, Responsibility, and Disclosure Act, that it's possible another $1.5 trillion could be cut in 2010. Additional factors of this decline include risk-averse investors deterred by the scary economic climate and also less access to cash as the tax burden continues to rise out of control.

Candidate Obama was right-on when he proposed offering a one-time capital gains tax holiday for investors in new companies and making capital gains taxable on a sliding scale. But, predictably, I haven't seen or heard of those proposals since he's been elected.

At the state level, there are also proposals that aim to ease the tax burden on small businesses. One is to increase the amount of losses that can be deducted off of other income for capital purchases. Currently, the state only allows a business to write off $500 a year. Increasing the limit to $3,000 would ensure businesses have more cash in hand to reinvest and ultimately grow.

Another proposal would repeal the huge business tax just passed in the budget, known as combined reporting. Repealing this provision would have an enormously positive impact on small business startups. The combined reporting tax will collect over $100 million from banks alone. Using federal lending ratios, this higher-than $100 million tax increase on lending institutions means that there will be $1 billion less to lend to small businesses and entrepreneurs hoping to start a business and create jobs.

Unfortunately, because both of these proposals aim to create jobs in the private sector, it's doubtful Democrats will bring them forward since their entire emphasis to this point has been on retaining and creating government jobs. However, there is a bipartisan bill, of which I am a cosponsor, to scale back the capital gains tax increases passed in the budget. Hopefully. the willingness of some Democrats to support this bill is an indication that at least some Democrats think their own budget will have dire consequences for Wisconsin taxpayers and small business owners.

Realistically, since Democrats unanimously supported a budget that contained these tax increases, it's unlikely this bipartisan bill will move forward - but that doesn't mean we shouldn't try.

Small businesses are vitally important to the health of our economy and encouraging their growth is a good way to get the economy back on track. Instead of throwing trillions of dollars at programs that can save a few jobs, or even at nationalized health care, we should first spend time figuring out ways to promote innovation in small business so Americans can once again find good family-supporting jobs that eliminate the need to rely on the government for livelihood and necessities.

So when you read the newspaper or hear commentators on TV telling you the economic recovery is just around the corner, remember to first look at your local main street to see if the empty storefronts are no longer empty. If they're filling up, it means small businesses are once again leading us out of the recession. If not, it's simply more talk from economists rooted in Wall Street theory rather than Main Street reality.

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State Representative Robin Vos State Capitol - Room 105 West - Post Office Box 8953 - Madison, Wisconsin 53708 Phone: (608) 266-9171 - Toll Free: (888) 534-0063 - Fax (608) 282-3663 Email: Rep.Vos@legis.wisconsin.gov On the Internet: Representative Vos' Web Site