I don't have much in common with my friend Rob.
Rob (I'm changing his name here so he won't yell at me) owns a 60-employee roofing company near me in Oreland, Pa. I run a 10-person information technology consulting firm. Rob has tattoos snaking up both of his arms. I have a mosquito bite on my left shin. Rob spends his days outside, in all weather, climbing up buildings and trading dirty jokes with his guys. I operate inside a climate-controlled, windowless room, drinking green tea and chatting with tech support in India.
Although we're different in many ways, Rob and I do share something significant: Our small companies are almost completely unaffected by the small business jobs bill pending in Congress. Both of us face politicians and bureaucrats who claim to know what our problems are and then pass weak, election-year legislation to fix them. We appreciate their good intentions. But they're not solving our problems.
The bill, passed by the House in June and being debated by the Senate this week, would lift taxes on capital gains for investors who buy a small company's stock between now and the end of the year. Rob may have a few people lining up to buy that Harley he recently refurbished, but there's no waiting list of investors looking to sink money into his little roofing company.
Measures That Don't Help
And the bill would allow businesses to "carry back" tax credits to offset taxes paid on prior years' earnings. Considering the state of the economy, let alone the construction and computer industries over the past few years, Rob and I haven't been seeing a whole lot of earnings either. Sure, we've made profits, but not so much that either of us would really benefit from this. So to us, that's meaningless too.
Rob and I are certainly not in "startup" mode, so neither of us could give a you-know-what about the $10,000 proposed deduction for "startup expenses." (Wouldn't most startups deduct the lion's share of these costs anyway?)
I'm grateful that I'll be able to deduct the entire cost of my family's health insurance under this new bill. And although my business doesn't have a lot of capital expenditures, I know that Rob and many of my clients are going to be happy that the tax break for investing in business equipment, known as the Section 179 deduction, will rise to $500,000 next year. Still, like many of my clients, we both wonder why Congress doesn't just make it permanent instead of putting us all through the uncertainty of wondering whether this provision will expire each year.
No Growth; No Borrowing
Rob likes beer. I like wine. Rob laughs through zombie films, I cried at the end of Toy Story 3. But one thing we both agree on: Our companies don't need more government-backed loans.
The new bill has provisions to help small businesses get more financing. The largest piece is the $30 billion Small Business Lending Fund, which would offer small banks government capital with incentives to relend the money to small businesses. There are also increased Small Business Administration loan guarantees, higher limits on certain SBA loans and microloans, and expanded SBA "express" loans. It's all very nice, and Rob and I are sure these provisions are probably very important to some small companies. But to him, they're about as useful as a gift certificate to Abercrombie & Fitch. (Note to friends: I'm O.K. with that gift.)
Rob's company is not growing significantly, nor is mine. Neither of us has plans to hire people. He's hunkering down, hoping for an expansion in the economy (or a series of tornados to hit the region). I'm hunkering down, waiting for that same expansion (or a new release of Microsoft Windows to hit our clients).
Customer Demand, Not Government Gimmicks
Hiring credits, increased loan guarantees, and other gimmicks to encourage us to bring on more employees aren't fooling us either. Rob will hire more roofers when he has more roofing work. He'll get a loan when he has a legitimate investment to finance—and his bankers already have the money to fund that loan if it's a good business move. This is not like getting 30 percent off a T-shirt if you buy another T-shirt. If there's an incentive available when he's hiring, he'll take advantage of it. But governments don't influence his business decisionsÂ—customer demand does.
We need more demand. Not government demand—people demand. Customers aren't spending money on roofs or new software if they can avoid it. They don't want to draw on their already depleted savings while they watch other countries go bankrupt and read reports from legitimate economists that if we don't stop our runaway deficits, the same thing will happen to us. They're warily eyeing upcoming tax increases from federal, state, and local governments and wondering how they're going to cover expenses. And if they do sell investments to draw on their savings, they definitely don't want to pay higher capital gains taxes, which take effect in 2011.
Until taxes and deficits go down, no "jobs" bill is going to solve the problems business owners like us have. That's something Rob and I do have in common.