The Big Question

Winning the Small Business Vote


The 2012 Presidential election could very well be decided by which candidate can win the small business vote. President Barack Obama’s recently unveiled $447 billion jobs bill aspires to jump-start hiring through a combination of tax cuts and infrastructure investments. His political rivals in the GOP have all but declared his plan unworkable and put forth ideas of their own. The irony is that both Democrats and Republicans want to help small business. They just can’t agree on how.

Nothing is small about the small business vote—a segment that’s badly hurt by the recession but that plays a pivotal role in recovery. Approximately 70 million people in the U.S. work for or run a small business, according to the National Small Business Assn. (NSBA). Over the past two and a half years various policies have been negotiated in Congress, but no solution has worked too well. Despite increased government spending and historically low interest rates, real GDP, which shrank in 2008 and 2009 and increased 3 percent in 2010, is forecast to slow again to an average 1.6 percent growth rate this year, according to the most recent Bloomberg data.

The NSBA argues that government has done little to help small business owners survive the economic downturn and get back to creating jobs. According to its 2011 Mid-Year Economic Report, 26 percent of small businesses were cutting jobs, compared with 22 percent that were adding new workers. Many business owners face obstacles getting financing, and there is worry that the new health-care law will increase premiums.

EARLIER MEASURES

The federal government hasn’t exactly been sitting on its hands. For example, the Recovery Act paid out $36.9 billion in tax incentives for businesses, yet many—small and midsize companies in particular—have not recovered significantly from the Great Recession, especially as many Americans have seen their income shrink or stall. Other shortcomings: The first-time homebuyer tax credit temporarily stimulated sales but the market dipped again after it expired. The S&P/Case-Shiller Home Price Indices show that by June 2011 home prices were back to early 2003 levels. And despite more than $51.6 billion of Recovery Act funding for transportation and infrastructure, the construction industry still had an average unemployment rate of 19 percent in the first half of the year, according to the U.S. Bureau of Labor Statistics. Another sector that has been particularly hurt is manufacturing, which had an average unemployment rate of 9.6 percent through the first half of 2011.

To aid small business, Obama’s bill cuts the payroll tax in half, to 3.1 percent, for employers on the first $5 million in wages, temporarily eliminates employer payroll taxes on wages for new workers or raises for existing workers, accelerates government payments to small contractors, and reduces regulatory burdens on small business capital formation. Included in the House Republican Plan for America’s Job Creators are congressional review and approval of any government regulations that “burden small businesses” and audits of existing and pending regulations to address those that “hinder economic growth.”

Beata Caranci, an economist with TD Bank Group (TD) in Toronto, says, “Looking at the last three recession cycles, [small and midsize enterprises] have driven roughly three-quarters of the job gains in the first two years of the recoveries.” She adds: “If we consider the extraordinary weak job recovery exiting this latest recession, a large part of that is because SMEs have not been as engaged on hiring intentions.”

“We are pleased that the President again underscored easing the regulatory burden on small business, however there continues to be a disconnect between his words and what various agencies under his purview are doing,” NSBA President and Chief Executive Officer Todd McCracken said in response to the new jobs bill.

WHO’S ADDING JOBS

As of August, the national unemployment rate stood at a 9.1 percent (compared with 5.8 percent in 2008), according to the U.S. Bureau of Labor Statistics, and Bloomberg data show the rate is forecast to remain above 8 percent through 2013. Nearly every sector has shed workers since 2008. The only industries to add jobs, say the BLS data, are heath services (driven by an aging population and longer life expectancies), education (due to rising student enrollments at all levels), and mining (due to a boost in oil and gas extraction).

The small business segment has been hit especially hard. The number of private sector businesses with fewer than 100 employees fell nearly 89,000, to 8.48 million establishments, from first quarter of 2008 to the first quarter of 2010, representing about 84 percent of lost private establishments in that period, the BLS data indicate. The number of workers at businesses of this size also dropped by about 3.8 million during those two years.

The generally uncertain economic and political environment domestically and overseas is feeding an atmosphere of worry in the U.S. As Moody’s Analytics Chief Economist Mark Zandi described to the U.S. Congress Joint Economic Committee in June, there is “an extraordinary edginess among consumers, businesses, and investors.” Skittish businesses are hoarding cash and making do with smaller staffs.

UNEMPLOYMENT ABROAD

Of course, the U.S. is not alone in its struggles. The euro zone had 10 percent unemployment in July. The jobless rates in Spain, Lithuania, Greece, and Ireland have all exceeded 14 percent sometime this year.

Places enjoying low unemployment are mainly in such fast-growing regions as Asia. In June, Singapore’s jobless rate was 2.1 percent and China’s 4.1 percent, while Hong Kong’s was 3.4 percent in July. Some standouts in Europe: Switzerland (which maintained strong exports) at 2.8 percent in August; the Netherlands and Austria (where there are many part-time workers) at 4.3 percent and at 3.7 percent in July, respectively; and Norway (where a sovereign wealth fund fueled by the country’s oil industry helped create jobs in the downturn) at 2.7 percent in August.

“American businesses are well-poised to compete in global markets. A sound fiscal situation and saner tax code are the key missing ingredients,” says Zandi.

Hopefully, Washington will have the focus—and discipline—to develop a solution that finally shows results. There may be passionate disputes in Washington on how to help American business, but with years of slow job growth expected, it is time for all parties to find ways to support the country’s strengths rather than adding to its weaknesses.

Click here to see the complete Big Question special report.

Venessa-wong-190x190
Wong is an associate editor for Bloomberg Businessweek. Follow her on Twitter @venessawwong.

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