Almost all elected officials will tell you how important small businesses are in their states. However, the financial crisis largely has been focused on the problems of Wall Street institutions.
Politicians in Washington must be mindful of supporting small businesses during these tough economic times. I am troubled that they are not.
When Congress and the Bush administration agreed to the Emergency Economic Stabilization Act, they included provisions that specifically focus on small businesses. First, the bill provided tax relief to community banks so they could take worthless Fannie Mae and Freddie Mac stock off their balance sheets. Providing this relief was the equivalent of billions of dollars in lending capacity to community banks. These banks play a vital role in the Main Street economy, with almost half of all small businesses relying on community banks.
Second, the Federal Deposit Insurance Corporation limits were raised from $100,000 to $250,000. This increased insurance protections for small business accounts and improved overall confidence in the banks.
Washington enacted this legislation quickly to respond to a spreading problem. The $700 billion allocated to the Troubled Asset Relief Program was supposed to buy worthless assets from banks and other financial institutions to unclog the financial system. The incoming Obama administration must work closely with the outgoing Bush administration to make sure that these funds are used wisely, focusing not just on large Wall Street institutions, but also protecting local community institutions.
Total lending is down right now. This reflects the current economic slowdown with many businesses choosing not to make new investments. As the economy recovers, it is vital that small businesses have access to the community banks and commercial banks that provide the credit and financing to make new investments in their businesses.
While so much attention has been focused on Wall Street and larger corporations, it is important to keep in mind that 70 to 80 percent of the net new jobs created over the past decade were created by small businesses. It is more than just a cliché to say that small business is the engine of economic growth.
Just remember, following the bursting of the tech bubble several years ago, America’s small business owners led the economic recovery.
Small business can again play the leading role as we work our way through this economic downturn, but they need the tools to do it. If the U.S. Treasury is creating programs to buy commercial paper and injecting taxpayer money into commercial banks, then Congress and the new administration need to make sure small business has access to credit.
But they also need to keep the costs of doing business low so business owners can invest and create jobs. This includes:
— Keeping tax rates low. Most small business owners don’t pay the corporate tax, so low individual rates mean small business owners will have more capital to invest in their ventures. In addition, this includes making permanent the increased small business expensing deductions for new equipment, and providing permanent relief from the estate tax.
— Reducing the cost of health care, one of the biggest problems facing small business owners. Controlling these costs will reduce the cost of doing business and improve the health of small business employees.
— Lowering energy costs by increasing access to domestic sources of energy and supporting new energy technologies. I visited with Treasury and White House officials several weeks ago, after I had talked to several small business associations. My message was: Don’t allow the sneezes of large financial institutions to cause pneumonia for small business.
If commercial banks and the large financial institutions don’t take the money that was injected by the U.S. Treasury and get it out the door to small businesses, then trust me, small business will catch pneumonia every time Wall Street sneezes.
J.C. Watts (JCWatts01@jcwatts.com) is chairman of J.C. Watts Companies, a business consulting group. He is former chairman of the Republican Conference of the U.S. House, where he served as an Oklahoma representative from 1995 to 2002. He writes twice monthly for the Review-Journal.