The American Jobs Act – Take a Pass on it Now

Open letter to President Obama, Eric Cantor, John Boehner, Nancy Pelosi, Harry Reid, Mitch McConnell 

From:  Rusty Luhring, Small Business Advocate

Founder and CEO of Luhring SurvivalWare, Inc.

Entrepreneur since 1979 

Subj: The American Jobs Act – take a pass on it now 

Listen – there are 14 months before the next election, and I agree with the President that you all need to do your jobs now.  That is what we hired you to do.  Please listen to this small business owner’s point of view. 

I keep hearing from all sides of the political discussion that Small Business is the key to job creation and growth for this country.  Friday’s Wall Street Journal (9/9/2011) featured an article on page A7 with the title “Small Business Is Focus of Tax Cuts.”  A senior administration official is quoted from a briefing for reporters before last Thursday’s speech: 

       “We think economically there is significant differentiation between the largest companies that are sitting on significant cash, and many smaller companies who have faced a perfect storm in terms of more difficulty getting working capital.” 

I agree with that senior administration official in describing the nature of the problem facing small business, but I don’t see anything in the President’s proposal that remotely resembles a solution. 

I’d like to make five points: 

  1. I can’t see how a cut in the payroll tax is going to spur more hiring.  Think about it: payroll costs are typically 50% to 80% of a small company’s operating expenses in my experience.  So payroll taxes at 6.2% of wages represent about 3% to 5% of a company’s total operating expenses.  Cutting that in half is a net reduction in expenses of 1.5% to 2.5%.  And it is for one year only.  But not a lump sum – it is spread evenly throughout the year.  Hardly an incentive to hire a full time employee. 

2. I think perhaps that policy makers and economists have missed a web-enabled trend as significant as cloud-based computing and the internet itself:  the advent of the virtual company.  These are companies that rely on on-demand services from providers all over the world for all sorts of tasks that previously required adding to headcount.  This is not a bad thing.  I like to cite the example of AccountDepartment.COM.  They will do all of your book-keeping and accounting remotely through a well managed and extremely competent work force scattered around the U.S. working out of their homes.  They do not ship jobs overseas – rather they tout their 100% American work force as a key marketing advantage.  They allow small companies all over the country to get more done with less.  My take on the trend:  let’s make it easier for people to become entrepreneurs, even if they are providing jobs just for themselves initially.

  1. Focus on solving the “access to capital” problem for small business.  We have borne the brunt of the financial meltdown.  We are the collateral damage of the Dodd Frank act, the ill-fated stimulus program, and TARP.  That big sucking sound you hear is not jobs going toMexico, it is cash from our pockets going to institutions too big to fail.  Do you know how frustrating it is to read about interest rates being close to zero when we are lucky to get credit at 23.99% APR if we can get it at all?!  Listen, access to credit is what enables a small business to take risks.  It is a safety net.  Our thinking goes like this:  if we have some cushion, we can deploy capital to those opportunities with the highest return on capital.  The market sorts out the best uses of capital.  But if we have no cushion, we can’t afford to take risks, because even minor missteps can cause us to go out of business and lose everything.  Part of being in business is constant experimentation to see what works and what doesn’t.  It means that not every idea pans out.  We have to have room to fail, on occasion. 

4. Do you realize how totally ridiculous small business programs have been in the past?  Take the ARC Loan program cited by Karen Mills, head of the SBA, as an example of the good things they do for us miscreants (um – entrepreneurs).  This was in 2009 after the “unpleasantness” of the 2008 financial crisis.  You could borrow up to $35,000.  You had to show positive cash flow at least one of the previous two years.  (Funny – I don’t remember positive cash flow being a criterion for lending a helping hand to the auto industry, AIG,  or Fannie Mae).  You had to show hardship of some sort, like the reduction in a credit line or a drop in sales.  Fill out forms up the wazoo to document said hardship.  The SBA would guarantee 100% of the loan, and pay the banks prime plus 2% interest.  The banks gave the program a decisive yawn. 

5. Finally, this payroll tax cut is sending the WRONG message about the social security / entitlement problem.  What we are haring you say is this: “Let’s show we’re serious about solving the problem by cutting its funding in half for a year.”  I don’t think so.  Excuse me if that doesn’t make me more confident in the direction of the country’s economy, and the ability of our political leaders to put us on sound footing so that we can go about our business, hire more people, spend more money, and grow, baby, grow. 

What would I do?  I’ll have to make that the subject of another missive.  It’s Monday morning and I have to buckle down and do some planning so I can “put tacos on the table” the rest of this month and next.  Now that’s what I call a real economic incentive.

Advertisements

5 Responses

  1. […] entrepreneurs to collect unemployment insurance while they start companies. A small-business owner doesn’t see anything in the proposal that “remotely resembles a solution.” Here’s why more mid-Atlantic […]

  2. […] entrepreneurs to collect stagnation word while they start companies. A small-business owners doesn’t see anything in a offer that “remotely resembles a solution.” Here’s since more mid-Atlantic companies […]

  3. […] entrepreneurs to collect unemployment insurance while they start companies. A small-business owner doesn’t see anything in the proposal that “remotely resembles a solution.” Here’s why more mid-Atlantic companies […]

  4. […] entrepreneurs to collect unemployment insurance while they start companies. A small-business owner doesn’t see anything in the proposal that “remotely resembles a solution.” Here’s why more mid-Atlantic companies […]

  5. […] entrepreneurs to collect stagnation word while they start companies. A small-business owners doesn’t see anything in a offer that “remotely resembles a solution.” Here’s since more mid-Atlantic companies […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: