Business Leaders Say Stop Using Bogus Definition of Small Business to Mislead Voters and Policy Makers

Washington, DC, October 10, 2012 ­­-- The American Sustainable Business Council (ASBC), which represents small- and medium-sized companies, calls on candidates for office to stop misleading voters with bogus data based on inaccurate definitions of small business. Specifically, a report commissioned by the National Federation of Independent Business (NFIB) and the U.S. Chamber of Commerce, implied a complete falsehood: that the top 3% of small businesses are responsible for more the 50% of jobs in the United States.

“I’m incensed that a candidate for office would use small businesses to mislead voters,” said Frank Knapp, Vice Chair of ASBC and CEO of the South Carolina Small Business Chamber of Commerce. “Small businesses are the engine of our economy, not a way to score points in a debate.”

In the first Presidential debate last week, much discussion focused on the potential impact of tax policy on small businesses. But there was a dispute over the definition of small business, stemming from the NFIB/U.S. Chamber report.

ASBC contends that careful reading of the report shows that attribution of jobs to small businesses was made not to the top 3 %, but to all businesses that the report the report defined as small. Therefore, the statement that the top 3% of small businesses employ 50% of US workers is false.

Further, the report’s definition of small business was itself erroneous:

·         The report defines a small business by its corporate tax structure (S-Corp, LLC, Sole

        Proprietorship) instead of the most common definition of fewer than 100 employees. 

·         The report incorrectly equates individuals with any amount of taxable business pass-through income from an S-Corp or LLC with small business owner/operators who make hiring decisions.

“Under this wrong definition of small business, all of the big accounting firms, with tens of thousands of employees each, and some massive global companies like Cargill, would be considered ‘small,’” said Scott Klinger, Tax Policy Director for ASBC. “It would be misleading to say you are proposing tax policy to help small business if you are using this definition.”

“NFIB claims to represent me, but I’ve never heard from them and they’ve never asked my opinion,” said Josh Knauer, President and CEO of Rhiza Labs. “My company was recently named one of Pittsburgh's 10 fastest-growing tech companies. We have directly benefited from the tax dollars that went into the research that created Internet technologies long ago. This country needs to invest more in basic research to plant the seeds for the next inventions that will change our lives in ways we can't presently imagine. I never hear the NFIB talk about that.”

Dean Cycon, CEO of Dean's Beans Organic Coffee, in Orange, Massachusetts, does know NFIB.  "They tried to get me to sign up with them,” he said, “but it was clear that they represented a political agenda, not a small business agenda. I told them to take a hike. So it was shocking to hear them quoted so much in the recent debate, as if they were some sort of neutral, authoritative body. They are neither."

The American Sustainable Business Council and its member organizations represent more than 150,000 businesses nationwide, and more than 300,000 entrepreneurs, executives, managers, and investors. The non-partisan council includes chambers of commerce, trade associations, and groups representing small business, investors, microenterprise, social enterprise, green and sustainable business, local living economy, and women and minority business leaders. ASBC informs and engages policy makers and the public about the need and opportunities for building a vibrant and sustainable economy.  www.asbcouncil.org

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Editor’s notes:

The NFIB-commissioned report (July 2012) implies that job figures apply to business owners paying taxes in the top-two tax brackets (the top 3%). It cites an April 2011 E&Y report, which instead clearly says that all "flow-through businesses" employ 54% of the private sector workforce.

Since the issue is tax policy impact on small business:

·         The nonpartisan Joint Committee on Taxation estimated that only 3 percent of small business owners who pay pass-through taxes do so in the two highest income brackets. The Center on Budget and Policy and the Tax Policy Center have each reported that the percentage of business owners likely affected by the tax hike would be even smaller (CBPP), as low as 1.5 percent (TPC).

·         From the National Economic Council (White House report):

The 3 percent of “small business owners” who would see tax increases include many individuals who play no role whatsoever in running a business or who receive business income from “businesses” that have no employees.

The 3 percent includes:

•        Individuals who are only passive investors. A Treasury analysis found that on average “small business” filers with total incomes over $200,000 get less than a sixth of their total income from a business.

•        Individuals who obtain income from businesses that are not small or are only investment vehicles and have no employees. Contrary to claims that the tax increase under the President’s proposal would fall mostly on job creators, the same Treasury study found that only a minority of the filers with business income who would see a tax increase obtain any of that income from a small business with employees.

•        Law firm partners, hedge fund managers, and other highly compensated professionals who typically organize their businesses as partnerships. Over half of the 400 highest-income taxpayers in the country have some business income and therefore are counted in the 3 percent.12

•        Wealthy individuals whose “small business” is renting out their vacation home or other property.

 Contact: Bob Keener, 617-610-6766, bkeener@asbcouncil.org

 

Small businesses failed once again

The news story below is a sad tale of how partisan politics, lack of administrative focus and regulatory slowness turned what should have been a boost for small business into a failed effort.  Nobody supported the Small Business Lending Fund more than I did.  I even participated in a press conference at the Capitol with U.S. Senators to push for passage of the Small Business Jobs Act that included the Fund. 

Lack of demand was not the reason for the Fund’s failure.  There was plenty of demand for small business loans when the idea was first presented by President Obama in January of 2010.  But Republicans in Congress with the support of the US Chamber, big banks and even the NFIB delayed passage of the bill for months while loading it up with too many limiting-bank qualifications.  Then Treasury didn't move fast enough with the regulations. 

But there is still demand out there for small business loans.  We just need a better and FASTER delivery system—and less partisan politics.

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Slate
October 11, 2011

Take Our Free Money, Please!

Why Obama’s $30 billion small-business loan program has flopped.

By Annie Lowrey

What happened to Obama's plan to help small businesses?

When the recovery started to flag in 2010, the Obama White House and Congressional Democrats attempted to pass a series of stimulus bills. A $150 billion, spending-heavy jobs package became $17.5 billion in tax cuts. Proposals for aid for the unemployed and the extension of Recovery Act programs faltered. But one bill that did pass was the Small Business Jobs Act, a law designed to funnel cheap money to small businesses.

The signature portion of the bill was the Small Business Lending Fund, a $30-billion pool of money for small banks meant to facilitate lending to small businesses. Little, local companies, the White House had long held, were the “engine” of the recovery and the creators of job growth. Help them, and you’d help the economy get back to growing.

Reading Treasury Department’s recent reports on the Small Business Lending Fund, you might think it had actually worked. “Billions of dollars in SBLF funds are now being put to use in communities all across the nation, spurring small business growth and job creation,” Deputy Secretary of the Treasury Neal Wolin said in a press release last month. The investment “is good for our economy and good for America’s small businesses.”

Treasury’s sunny spin aside, the program has largely flopped. It expired at the end of September having disbursed not $30 billion, or $15 billion, or even $5 billion. The SBLF is returning $26 billion to the government’s coffers. According to the Treasury Department, just 933 out of the country’s 7,700 or so community banks applied to the program. They requested just $12 billion in loans. And one-third of that sum got approved.

What happened? Well, first off, community banking organizations and small banks themselves argue that Treasury and the Federal Reserve made the program’s requirements too stringent and that they were too slow to get it off the ground. Treasury only started approving applications in early July, three months before the program’s expiration date.

The Independent Community Bankers of America lobbying group, for instance, sent repeated public letters to Treasury, asking it to clarify and loosen requirements and speed the application process. In September, with the program’s sunset in sight, it wrote: “[We] again implore Treasury and all the bank regulators to do everything in their power to ensure all SBLF applicants’ concerns are addressed … We urge Treasury to respond expeditiously to the community banks that still have questions and concerns … [W]e ask that Treasury take a hard second look.” In its defense, Treasury says that many of the community banks’ applications just did not pass muster: The banks could not prove they could make required dividend payments, or they already had missed a Treasury payment, or they were on a problem-bank list.

More troubling, the $4 billion in loans the government did make might not really help small businesses anyway. A Wall Street Journal analysis of Treasury data found that about half of the banks that took cash from the fund used some of it to pay back the Troubled Asset Relief Program. Rather than giving money to the restaurant around the corner or the startup in your neighbor’s garage, the banks gave it right back to Uncle Sam, bettering their balance sheets but doing little to spur business expansion or job growth. The Chamber of Commerce howled, branding the program little better than a bailout for small banks.

But there is another reason the program faltered—and might never have been able to succeed in the first place. Small businesses need credit to grow, to acquire equipment and hire workers to make sure more and more customers come in. But if small businesses don’t really believe that those customers are going to come in, well, they tend not to want to take on any debt. At some point, the problem isn’t a lack of credit. It’s an economy-wide lack of demand.

Have we hit that point? Almost certainly, and we’ve been there for years. According to the National Federation of Independent Business, the small business lobbying group, company owners routinely cite a lack of sales as the biggest problem for their business, more so than onerous regulatory requirements, high taxes, or trouble getting loans.

At a congressional hearing last week, Rep. Nydia Velazquez, D-N.Y., therefore argued that the whole program was misguided, “[wasting] today’s resources on yesterday’s problems.” In response, Treasury Secretary Timothy Geithner admitted, “We’re a little surprised by the take up” but maintained the program was “well targeted.”

In a way, they both right. Small businesses could use loans, and Treasury should be taking on risk and bending over backwards to make sure small banks are throwing free money at them. But that free money through the back door is no substitute for a flood of customers through your front door.

http://www.slate.com/articles/business/small_business/2011/10/why_obama_s_30_billion_small_business_loan_program_has_flopped_.html