Donald J. Patti

With Goliath Incentives for Others, Seven David’s Need Stimulus, Too

In Business, Finance, Politics, Small Business, Uncategorized, United States on 29 January 2009 at 12:05 pm

Last Saturday, I received call #7 from a friend or associate starting a business in one of the gloomiest climates since the Great Depression.  Never mind that these seven individuals are figuratively “spitting into the wind” (Jim Croce) by spending time and money in such difficult economic times, their efforts are a telling example of how the U.S. economy recovers time-and-again from recessions.  Despite big businesses shedding jobs and shuddering their windows until the economic climate improves, individuals like you and I come to the rescue with innovative ideas, hard work and untiring faith to renew growth in the most impressive economy the World has ever seen.

Given the repeated successes of America’s Davids (and Davidettes, ladies), I’m surprised and disappointed to see that President Obama has left sizable incentives for small businesses out of the economic stimulus package before Congress.  With mass transit and benefits extensions for the unemployed on the list, there’s definitely been some careful thought put into the plan about who needs help and where future growth should occur.  However, there’s little to nurture the efforts of the seven fledgling businesses contained in President Obama’s package.

Knowing the business models the seven David’s will use to grow, I’ve thought of 5 ways the 2009 stimulus package could be modified to help small businesses get America back on its feet.  These should be targeted at businesses under $5 million in annual revenue and owned entirely by individuals (sole proprietorship, partnerships, S corps, small LLC’s) to prevent larger businesses from launching subsidiaries just to take advantage of the situation:

1. Give a Three-year Tax Holiday on Income Increases to Small Businesses.

Description: Give a three year tax holiday at the Federal and State level for income growth when compared to 2008.  If you made $100,000 net income in 2008 and $250,000 in 2009, the additional $150,000 in income would NOT be taxable.  If you lost money in 2008, then any earnings in the next three years would be untaxed.  The same should apply to 2010 and 2011 when compared to 2008 earnings.

Reason:  This rewards small businesses for taking risks in 2009, 2010 and 2011 to invest in activities that increase growth, which will increase spending and employment throughout the economy.  The alternative is to NOT do this, not see the growth and not collect the tax revenue, anyway.

2. Reward Small Business for Going Green.

Description:  From buying energy-efficient equipment to purchasing fuel-efficient cars to reducing energy consumption to installing solar power, small businesses should be rewarded for finding ways to run lean.

Reason:  An immediate capital investment will boost the economy short term and reduce our dependence upon unstable energy sources long term.  Even better, getting small businesses to think green will encourage them to build this mindset into every avenue of future business, yielding gains decades ahead.

3. Give Incentives To Hire.  Big business is cutting back big time on head count and small businesses will likely follow suit.  Give small businesses 10% of each employee’s salary – up to $10,000 –  as incentive for bringing on new people. Decrease the incentive to 5% in 2010 and 2011.

Reason:  Small companies hiring in 2009 should be rewarded for bucking the trend.  While big businesses could potentially receive the same incentives, small businesses are far less likely to find loop holes in the law to exploit the tax benefits without truly bringing on a live body.

4. Encourage Small Business to Advertise.

Description: For every small business in America, give a 50% tax credit for $ spent on marketing and advertising in 2009 up to $25,000 in total benefits.  The money must be spent outside the business to either market or advertise the company’s products and services and must result in a bulk e-mail, a website banner ad, a radio ad, a newspaper listing, a cable TV ad or something similar that was not done in 2007 or 2008.

Reason:  If there’s one place I believe small businesses chronically under-spend, it’s on marketing and advertising.  Even worse, advertising is often a hit-or-miss endeavor and it takes a few tries to be successful before the appropriate channel is identified.  This type of advertising incentive encourages small businesses to consider how they can grow and the $50,000 investment required to gain the $25K in tax credits will have an enormous impact on the sales of a small business.  That same $50,000 would do little for a big one, which is already advertising at a level well-above $50 grand.

5. Provide Easy Access to Working Capital Loans for Small Businesses.

Description: Through the SBA, triple the number of $25,000-$50,000 loans to small businesses and ease up on the credit restrictions.  Advertise the avalable loans; guarantee the loans issued by banks; and, issue the loan directly if the banks won’t.

Reason:  Many small businesses aren’t expanding because they simply can’t get a hold of the capital necessary to run their current operations on a day-to-day basis.  Working capital enables small businesses to pay employees, cover rent and buy raw materials up front until their clients pay them for services or consumers buy their goods. Yet, banks have shut off the tap to their lines of credit and many aren’t issuing any new credit at all, even if the borrowing business has historically been successful.  Increasing the number of Working Capital Loans will prevent contraction among small businesses and can enable them to grow, once again.

———

I’m not a professional economist (though I have an Econ degree and an MBA), so I honestly can’t tell you how much money, in billions of dollars, these incentives would cost.  I don’t have access to the modeling tools economists use and my pencil isn’t that sharp.  But I can tell you that small businesses have historically led economic recoveries, that a little money goes a long way in a small business, and the seven David’s have some good ideas that will need a break if they are to succeed in 2009.

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