It may come as a surprise to some that small businesses, the very backbone of our economy, are among the big losers under the Bush tax plan.
In fact, small businesses, in large part, will be paying for the tax breaks slated for big business and the wealthy through new taxes disguised as fees. Not only is this ironic, it's bad policy. And it seems to evidence a disconnect at a White House that is so solidly in business's corner.
When President George W. Bush acknowledged in his joint address to Congress that "help for small business means jobs for Americans," we took him at his word. Yet the very next day, he released a budget slashing the Small Business Administration (SBA) by 43 percent, from $900 million to $540 million, more than double the cut for any other agency.
We soon learned that his budget had even more devastating consequences for small businesses. It would impose a total of $168 million in new fees. For instance, small businesses seeking an average-sized 7(a) Loan Guaranty (one of the SBA's largest loan programs) would pay an additional $1,400 to $2,400 in new fees up front, plus a higher interest rate totaling $6,000 to $7,000 over the life of the loan, for a grand total of about $10,000 extra.
That's enough to prevent many an entrepreneur from even seeking the loan. And lest anyone think we're talking about just a few loans here, let me emphasize that there were 43,748 of these 7(a) loans, totaling $10.5 billion, last year.
Moreover, under the Bush plan, small businesses that seek disaster loans will pay an additional $7,500 on an average loan of $53,000 over a 15-year period. If you take into consideration the fact that the Federal Emergency Management Agency took the second biggest cut in the Bush budget, this leaves small businesses in an extremely vulnerable state.
The Bush budget also imposes $12 million in new fees on small businesses that use Small Business Development Centers, which provide management and technical-assistance to current and prospective small-business owners. There are 1,000 of these centers in the country, with at least one in every state.
The Bush budget would also eliminate the New Markets Venture Capital Program, which was part of the strongly bipartisan "New Markets Initiative" designed to bring prosperity to areas of the country that had missed out.
Finally, the president's budget would ax the newly created BusinessLINC Program, created to provide business-to-business mentoring partnerships between large and small businesses.
Any way you slice it, fees are a code word for taxes. And taxing small business is no way to make up for the president's other budget cuts. Nor does it make good economic sense to kill programs designed to promote small businesses.
During a recent White House press briefing, a reporter raised my concern that the Bush tax cut was "virtually crippling [the SBA's] ability to support small businesses that are the key to economic growth." The White House spokesman responded that the tax cut would be "very beneficial to small businesses" because they "are often taxed at the same rate as individuals." And indeed the president claims that, under his plan, the average family would get $1,400 in tax relief.
But what the president apparently fails to realize is that any benefits a small business would realize under the marginal rate reduction would quickly be canceled out by the thousands of dollars in loan fees, higher interest rates, and technical assistance costs.
I like to say that small business is big business in America. For many, it still comes as a surprise that small businesses employ more than half the non-farm work force, including 38 percent of the private-sector work force in the high-tech industry.
Small companies also provide 51 percent of the private-sector output, are responsible for almost half the nation's sales, and generate far more innovations than big business. And women and minorities are leading the way in business creation.
Given all this, the Bush budget seems to be killing the goose that lays the golden eggs.
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