What Obama Said About Small Business

Posted by: John Tozzi on January 28, 2010

A short but prominent section of President Obama’s State of the Union focused on helping small businesses to create jobs. Here’s a look at what he said and what it means. From the speech:

Now, the true engine of job creation in this country will always be America’s businesses. But government can create the conditions necessary for businesses to expand and hire more workers.

We should start where most new jobs do –- in small businesses, companies that begin when — companies that begin when an entrepreneur — when an entrepreneur takes a chance on a dream, or a worker decides it’s time she became her own boss. Through sheer grit and determination, these companies have weathered the recession and they’re ready to grow. But when you talk to small businessowners in places like Allentown, Pennsylvania, or Elyria, Ohio, you find out that even though banks on Wall Street are lending again, they’re mostly lending to bigger companies. Financing remains difficult for small businessowners across the country, even those that are making a profit.

Obama acknowledges that even though the credit crunch has eased for large companies that can borrow in the capital markets, bank lending to small businesses is still hampered. This picture became clear last fall, and the White House has hosted two summits with bankers where Obama urged them to increase lending. Banks remain under pressure from regulators to reduce risk on their books.

So tonight, I’m proposing that we take $30 billion of the money Wall Street banks have repaid and use it to help community banks give small businesses the credit they need to stay afloat.

The White House actually announced this proposal at a meeting with community bankers in December. Details remain sketchy, but the WSJ reports that the plan may let small banks borrow from leftover TARP funds at low rates if they increase their small business lending, without the same restrictions on compensation that applied to earlier TARP recipients. This change likely needs approval from Congress.

[Late update: More on this here.]

I’m also proposing a new small business tax credit -– one that will go to over one million small businesses who hire new workers or raise wages.

Congress is kicking around some proposals for a hiring tax credit. One plan by Sen. Bob Casey (D-Pa.) would give small businesses a one-year tax credit that hire new workers and increase their payroll. Companies with under 100 employees could write off 20% of the amount their payroll increased from the previous year. Larger firms could write off 15%. More from Dow Jones here. Obama himself has proposed flat $3,000 tax credits for new hires in the past.

While we’re at it, let’s also eliminate all capital gains taxes on small business investment…

The administration talked about this late last year. Currently, 75% of capital gains from selling stock in small private companies is exempt, but that expires for investments made after 2010. Obama’s plan would exempt 100% of those gains.

It’s an incentive designed to get more money into small businesses by making the investments more attractive, especially since tax rates on other capital gains — like the sale of stock in large companies — are expected to rise from 15% to 20%, says Lewis Taub, tax director at business consultant RSM McGladrey in New York. Angel investors or business owners who want to put more of their personal wealth into their companies would benefit when they sell their equity stakes. Eliminating capital gains on small business stock, combined with raising the rates on other types of capital gains, makes small businesses a more attractive asset class to invest in, Taub says. (To qualify, the company “may not have gross assets exceeding $50 million [including the proceeds of the newly issued stock] and may not be an S corporation,” Taub says.)

…and provide a tax incentive for all large businesses and all small businesses to invest in new plants and equipment.

Also previously announced, this refers to extending immediate deductions for capital investments that would normally have to be depreciated over several years. The incentives take two forms: Section 179, which allows total deduction of a capital expenditure up to a certain dollar amount, and bonus depreciation, which allows for an immediate deduction of 50% of the expenditure with no limit.

These provisions were set to expire at the of 2009. Taub says extending them would further encourage businesses to invest in expansion, which is tied to jobs. “If I invest in property, I’m expanding my plant, I’m expanding my operations, I have to hire people,” he says.

Another interesting bit: Obama set a goal to double US exports in the next five years, a priority the US Chamber of Commerce has pushed for.

To help meet this goal, we’re launching a National Export Initiative that will help farmers and small businesses increase their exports, and reform export controls consistent with national security.

More details to come.

The big wildcard for small business owners remains health care. Obama said he was still committed to passing reform. But since Democrats lost the crucial 60th Senate vote, the future of the biggest domestic policy priority of the president’s first year remains in doubt.

Reader Comments

bert

January 28, 2010 04:33 PM

These promises Obama made are worthless if the congress doesnt go along, plus Obama has a history of saying one thing to appease people and doing exactly the opposite. I wont believe a word of it until i see it happen.

Suzy Lang

January 28, 2010 04:56 PM

(To qualify, the company “may not have gross assets exceeding $50 million [including the proceeds of the newly issued stock] and may not be an S corporation,”

C Corp is in Vogue

Strategery

January 28, 2010 05:33 PM

Why would congress help small businesses? They don't buy congressional votes like big businesses do.

Greg Latimer

January 28, 2010 06:04 PM

$30 billion to help banks give small business credit? As great as that sounds, credit won't help if we don't have a healthy business environment.

Debt is not always the answer, as much as that statement may shock our government.

I wish he would focus instead on bringing manufacturing back to our country so there's a basis for an economy.

We've become dependent on foreign countries to provide us with the goods that we need, so now all we're doing is trading money on services in our country.

The money we spend on foreign goods leaves the US never to return, so when we need more dollars to bolster our economy we just print more and dilute its value even further.

We can compete in this country, but we need a level playing field. We don’t want charity, we want opportunity.

ObamaMessage

January 28, 2010 06:42 PM

Obama's Real Message to Small Business: go out of business b/c my big banks don't care about you (read: get your money from the Chinese) and work for one of my multinational mega corporations (read: in a 3rd world country for $1/hr to support your family and pay back your life time debt)...Welcome to the New America!

Maury

January 28, 2010 07:58 PM

I'm a small business owner who is considering hiring new workers. However, I am holding off hiring in hopes of getting some incentive from the gevernment.

George in California

January 28, 2010 11:28 PM

Total elimination of capital gains tax on small business investment is simply another case of corporate welfare, this time for the already ultra wealthy venture capitalists. Is this really how a Democrat president who -- along with Congress - won a landslide election in Nov 08, is this really how he wants to spend the taxpayer's money? Give it to people who already make $10 million or more per year? Really?

A much more effective way to help both small and big business is to direct more spending money into the pockets of the middle class taxpayer. The obvious way is by means of a reduction of the employee's part of the payroll tax. These middle class workers will spend it, and the money will go to the businesses who provide the best value. Isn't that how democratic capitalism is supposed to work?

Or is it now all just corporate welfare?

Shanda Barrett

January 29, 2010 12:43 PM

Maury, I applaud your optimism. I've spent the last two weeks talking to small business owners in Mississipi who -despite the tough economic times- have chosen to to hire where it makes sense and to invest in the training of their current workforce.

If it makes sense, look to your local workforce specialists for help with OJT funds. In MS, there's a ton on money set aside to help businesses improve the skills of their current workforce as well as to recruit entry level personnel.

I can't speak to your specific situation, but it might make sense to train an existing employee, promote him or her, and then hire a more entry level person.

At any rate, Small Business Owners are geniuses when it come to survival.

August

January 30, 2010 06:12 AM

I saw this speech myself, I think things can work. but we as the american people cannot expect the president to do everything, we have to step up to the plate to make thing happen as well. as much as I hate to say this Americans have gotten to be a bunch of lazy misfits we say we want jobs, but we are not looking in the right areas. not for profit organizations provide opportunities, many opportunities. Companies like the Avon provide opportunites for job growth. people are not looking there, even men are encouraged to apply for positions. there's alot of minority owned businesses that do alot of hiring, but america is far too arrogant to look at these areas. as the last person just stated Small Business Owner are geniuses when it comes to survival. I have to totally agree.

Jim San Diego

January 30, 2010 10:41 AM

Section 1202 dealing with zero capital gains, Obama's Proposal, is to restrictive...Today we have zero capital gains, IRC 1400B and 1400F, in Washington, DC, 40 Renewal Communities, including San Diego...We also have rollover capital gains in 40 Empowerment Zones...

k smith

January 31, 2010 09:12 AM

I think a good part if this is mute. Most small businesses are S-Corps or pass through entitirs so all these incentives will do nothing for most small businesses. I dont't think the incentives will outway the double taxation of earnings (via a C-corp) required to get these incentives.

Harry Moser

January 31, 2010 11:11 PM

I agree strongly with Greg Latimer. Bringing manufacturing jobs back is the single necessary solution for a stronger economy. Everything else is moving $ from one pocket to the other, with the government taking a commission on each pass. Three U.S. manufacturing trade associations are doing something real to create manufacturing jobs in the U.S. by re-shoring and you can help! The NTMA (National Tooling and Machining Association), PMA (Precision Metalforming Association) and AMT (Association for Manufacturing Technology), with promised support from NAM, are holding a re-shoring Purchasing Fair in Irvine, CA on May 12, 2010. See https://www.ntma.org/eweb/ProfilePage.aspx?WebCode=CSCEventInfoSC&evt_key=0bd0ea71-bbf9-4e3f-8d23-f3ec1d9e8fcc and click on Event Overview. Large companies will bring out work that is now off-shored. Hundreds of attending U.S. shops will then bid on the work. We anticipate bringing substantial work back. If the shops fail to be competitive, we will document the reasons and use the documentation to strengthen demands for other countries to raise their currency or for the U.S. to take unilateral trade action.
U.S. companies, especially the small to medium sized companies (SMEs) that create most jobs, can be much more competitive in the U.S. vs. imports rather than trying to export to other countries.
You can help in several ways:
1. If your company now off-shores machining or tooling production, suggest to your Supply Chain Manager or Purchasing Dept. that they attend the Fair.
2. If you have been involved with a successful re-shoring, contact me with the information. We are planning a continuing surge of published case histories on successful re-shorings so that OEMs understand that the new trend is to bring work back and produce it locally.
The time is right for this effort to succeed! The $ is down vs. many currencies. JIT and R&D are best supported, and carbon footprint minimized, by local sourcing.
You can reach me at harry.moser@us.gfac.com
Harry Moser, Chairman Emeritus, Agie Charmilles

john57

February 2, 2010 10:30 AM

Again small business ! Small Business cannot support America ! Wake up OBAMA ! When a company like Nike is making millions in profit because there product is made over Sea's by CHEAP Labor..How can a small Business compete ? they can't ! Place higher taxes on American companies that import there products to make higher profits' ... Or give them tax incentives to MAKE THERE Product here Can you even imagine the job's we would have if , Cell Phones were made here , computers, And the list goes on and on ... BRING THEM HOME Crate jobs!

Markus

February 4, 2010 11:05 AM

I agree with those of you who believe the focus of economic recovery here in the U.S. depends on our position in the global economic community.

Equalization of employee rights, compensation and benefits between countries is at best far off. We can extend this to say Environmental constraints, human rights and taxation are all unlikely to become uniform in the global economy in the near future. Why do we act like they are. Why is it OK to import goods and services from foreign markets where these equalities don't exist. Can't WE as a country decide to impart these constraints on companies who wish to do business in the US. If we did, wouldn't The US be a better place to do business and employ citizens. Or maybe I'm just underthinking it.

Yea Harry, Greg and John. I'm looking for the made in America Stamp for my company, but it can be hard to find.

paul42

March 28, 2010 01:44 AM

I gave up trying to run a small, one man (me) service and repair business wherein economic downturns not only diminished my income considerably, but subjected me to IRS audits. (They just "KNEW" I was understating my income.) My wife's meager income was was barely paying for my liability and hospitalization insurance. I finally said "To hell with it", and went back to "working for the man" with all the other lemmings. If I had wanted to work with the lemmings, I wouldn't have left them in the first place. Do NOT forget, one of the first things that Socialism strives to eradicate is the individual who tries to slip out of the mainstream of dependency on the teat of Mother government. (I DID, however prevail over the auditor.) But, free enterprise ain't really free, is it. Just like freedom.

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What's it like to run your own company today? Entrepreneurs face multiple hurdles new and old, from raising capital and managing employees to keeping up with technology and competing in a global marketplace. In this blog, the Small Business channel's John Tozzi and Nick Leiber discuss the news, trends, and ideas that matter to small business owners. Follow them on Twitter @newentrepreneur.

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