Dallas, TX –
Congress is on the verge of passing an $850 billion (or maybe more) stimulus package that is supposed to create several million jobs quickly. Those expectations are unrealistic, and I'll explain why in a moment. What will work is to focus on the role that small businesses play in our economy and job creation. I have a few suggestions and some cautionary remarks for Members of the House and Senate.
I want to start with a look backwards. In the 1980s, our three major industries, oil and gas, real estate and banking, lost tens of thousands of jobs, but overall employment in the region stayed stable. The North Texas Commission asked an economist to examine the situation and he found that there had been huge growth in the number of small businesses, and they were providing jobs.
We are still doing it and we can and will do it again. Of course, you're reading about big name companies in the news, but it's us, the other end of the spectrum, that's much more important. I'm a small business. There are 10 employees, some interns and some independent consultants. Most companies in the U.S. - 99.7% - are small businesses. We generate 60 - 80 percent of all new jobs. Small businesses produce 12 to 14 times more patents than the large firms. And there are a zillion kinds of small business; 53 % are home based. There are franchises, independent contractors, freelancers. So small business is where the jobs are.
Back to the current "stimulus" package: spending on big projects, particularly what's called infrastructure,' may be important and wise. But the Congressional Budget Office estimates that the money won't really hit the economy for several years because government spending has to go through the contracting rules, competitive bidding and administrative procedures. We bypassed those rules and tried to accelerate the process in Iraq, and the result was a whole host of problems.
One novel idea to help small businesses keep and create jobs quickly is a six month cessation of the pay role tax, the 6.2 percent of your salary your employer pays to the government, and perhaps the 6.2 the employee also pays. While everyone already knows Social Security needs attention, we can delay that for a year since Congress has been avoiding the topic for years, in order to keep millions of people employed right now. The numbers are staggering. If a company has five or ten employees, this literally means the difference between keeping one or two employed as opposed to letting them go. A six month holiday of not collecting those taxes would also put money into the hands of low and moderate income workers who do not pay any income tax so would not benefit from any type of tax credit. One part of the stimulus plan sends them another one time check. Last year it was $500 to $1000. It may be harsh to call it a welfare check, but it's certainly a handout. Putting the employee's payroll tax right back into their check would be many times that and it's really the employee's money anyway.
The next message to Congress is: Don't write more rules. Don't write more regulations. Don't try to fine tune things. Everything you do has unintended consequences. For example, last year, Congress passed a law about lead in toys, but it requires expensive after-the-fact testing and applies retroactively, so toys and clothes made by small batch or old fashioned toymakers are literally going to have to be thrown out.
Congress loves complexity at a time when the rest of the world has realized the huge boost from simplification. All these regulations inhibit risk taking and risk taking creates jobs.
The costs of these regulations fall heavily on little companies like mine. To do our taxes and accounting, our company spends about the equivalent of one entry level position. That's a lot. Companies with fewer than 20 employees spend 45% more per employee than larger firms to comply with federal regulations. Four times as much per employee to comply with environmental regulations and 67 percent more per employee on tax compliance.
A headline in the New York Times recently said, "Some signs of revival appearing but still a very long way to go." Congress needs a fast education on the role small business plays. What happened here in North Texas in the late 80s has already happened in regions all around the country and can happen on a national scale. "Small" can have a very big impact.
Merrie Spaeth is a communications consultant based in Dallas.
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