Obama Must Consider These 8 Major Improvements To The Small Business Jobs Act

small business jobs

Last week we told you with some optimism that the Small Business Jobs Act passed through senate.

The Act is President Obama’s $43.5 billion dollar pet project to stimulate growth in the private sector.

Now, the bill is almost certain to be signed into law as it currently stands. And many of you are pissed.

Though we think it’s a step in the right direction, the bill has several obvious shortcomings. Yes, it does make credit more easily accessible for companies that aspire to expand.

But our readers were quick to point out that, given the current lack of demand for small business products and services, Obama’s so-called stroke of genius would likely flop.

Turns out, that’s just one of the weak areas of the jobs bill currently resting with the House. While republicans and democrats differ on exactly what changes need to be made, they do agree on one thing: it could be a lot better.

Clearly define what constitutes a small business

The current problem: Without a clear definition of the term 'small business,' republicans and democrats have taken the opportunity to run wild with data supporting their policy agendas. Currently, law partnerships, hedge-funds, athletes, and actors fall among the broad definition of small businesses. Even the recent Jobs Act can't help those 'businesses' create employment opportunities anytime soon.

What can be fixed: In a word, everything. Many of the debates surrounding the seven remaining potential changes, are impossible to navigate because of the broad definition of the term. By separating the small, privately-held businesses from the pack, Obama can be sure that his policy positively affects the enterprises responsible for most job growth.

Tighter controls on federal contracts to small businesses

The current problem: For years the American Small Business League (ASBL) has fought to ensure that the government abides by its promise to award 23 per cent of all government contracts to small businesses. However, Section 1341 of the Small Business Jobs Act offers the government a gaping loophole to get out of this promise, by protecting the government administrator from liability 'in cases of unintentional errors, technical malfunctions, and other similar situations' when signing government contracts.

What can be fixed: The bill must provide for stricter regulation. According to the ASBL 'over a dozen federal investigations' have found 'billions of dollars a month' in small business contracts being redirected to Fortune 500 firms since 2003. Now, they say, just 5 per cent of all contracts are awarded to small businesses.

Getting these contracts back to small businesses would be a huge step towards creating more demand. U.S. Senate Committee on Small Business and Entrepreneurship Chair, Mary L. Landrieu (D-LA), estimates that increasing contracts to small businesses by just one per cent, would create more than 100,000 new jobs. Imagine what an 18 per cent increase would accomplish.

More focus on true small businesses

The current problem: Much of the heralded increase in available loans will never benefit the companies that come to mind when you think 'small business.'

For example, the three major lending adjustments only affect loans in excess of $1M and serve to loosen the size restrictions on companies eligible for loans.

What can be fixed: The bill has some provisions for true smaller businesses---including an increase in the maximum microloan amount---but the problem for many owners isn't necessarily the size of the loan, rather it's the availability of a loan in the first place.

Policy should encourage banks to set aside credit to smaller neighbourhood businesses that don't aspire to eight-figure incomes.

Loans for startups

The current problem: Reader El Hadji Beye suggests the current bill does not offer enough funding to startups. An important point considering a recent study by the National Bureau of Economic Research that found age--and not size--was the best predictor of a company's propensity to create jobs. And what age are companies that create the most jobs? Just a few years old-- AKA, they're startups.

What can be fixed: The Small Business Administration could allocate more funds to a public sector venture capital firm that funds startups outside of the Silicon Valley spotlight.

Or better yet, start funding those clean energy jobs Thomas Friedman keeps clamoring for.

Bush tax-cut extension

The current problem: One reason republican leaders want to extend the Bush-era tax cuts are the alleged benefits they yield small business owners. The money many small business owners take home from their enterprise is taxed as personal income. Republicans fear that taxing these earnings impedes business expansion.

What can be fixed: This is a tricky adjustment, as it goes back to the murky definition of small businesses. While restoring Clinton tax policies would certainly hurt small business owners that personally earn more than $250K from their business, just 3 per cent of all small businesses would be affected, says the Joint Committee on Taxation. And most of the disturbed exist along the margin of the broad definition of small businessmen.

Even more credit

The current problem: In July, the National Small Business Association reported that 41 per cent of small business owners say they can't get adequate financing.

The big bailed out banks are using the second life bailout provided by taxpayers to trade rather than to lend.

What can be fixed: While the Small Business Jobs Act will certainly make loans easier to come by, the government needs to encourage big banks to do some lending, too.

The NSBA report makes it clear that an overwhelming number of businesses need additional support, and though neighbourhood banks can help alleviate the problem, what's a few billion more dollars to Wall Street?

Repeal the 1099 provision that forces small businesses to report nearly all of their expenditures

The current problem: The 1099 provision requires businesses to report every purchase above $600 it makes from other vendors for tax purposes. It amounts to a huge pile of paperwork, and incentivizes doing business with one huge super vendor rather than supporting other small businesses.

What can be fixed: Though repealing the provision cuts into government tax dollars, it streamlines the process for small businesses on both sides of the purchase by cutting down time-consuming filing.

The NSBA believes abolishing the 'mountains of paperwork' will ensure small businesses purchase their goods and services from other, similarly-sized enterprises.

Eliminate the $30B lending fund altogether

The current problem: Much of the current bill was written by a pair of republican senators, Iowa's Charles Grassley and Olympia Snowe of Maine.

They ended up voting against it because of the $30B lending fund that made headlines. They believe it's too reminiscent of the TARP (Troubled Asset Relief Program) that was mismanaged in 2008.

What can be fixed: The lending program exists to fix the mess in the first place. As previously mentioned, small businesses are key to job growth and many---41 per cent according to a recent NSBA report---can't access enough financing to expand their business.

However, if demand for small business output doesn't grow, then the government will need to fix a whole lot more as a result of this effort.

Wait, what exactly was in Obama's Small Business Job Act in the first place?

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