Grassley: Small Business Bill Should be More Targeted to Job Creation
Floor Statement of Senator Chuck Grassley: Comments on Small Business Bill
Delivered Wednesday, September 15, 2010
I’d like to speak for a few minutes about the pending legislation, the Small Business Jobs Act of 2010. For more than a year now the mantra of my colleagues on the other side of the aisle has been JOBs, JOBs, JOBs. Unfortunately, the only jobs the policies of my colleagues on the other side of the aisle have created are government jobs.
The legislative fixes proposed by the other side have fallen short in creating private sector job growth. Unemployment reached a high of 10.1% in October of 2009.
The Administration promised that unemployment would not go above 8% if we would enact their $800 billion stimulus bill. Moreover, they asserted that 90% of the jobs would be in the private sector.
The unemployment numbers have come down from their high in October, but this has not been the result of robust hiring in the private sector. To the contrary, many people are simply no longer counted as being unemployed because they have stopped looking for work. For those who did find work, many found work with the U.S. Census Bureau helping to complete the 2010 census. The unemployment rate reached a low of 9.5% in July, but once again has ticked up to 9.6% as 114,000 temporary census jobs ended.
While those who put their faith in the stimulus package believed that this summer would become known as 'Recovery Summer' due to all the stimulus projects under way, it actually has ended in what a National Public Radio (NPR) story termed an “Economic Pothole.”
To be fair, the private sector employment number has inched up slightly in the past few months. For August, the Bureau of Labor Statistics reported that private sector employment payroll edged up by 67,000. However, the problem is that around 150,000 jobs need to be added each month just to keep up with the growth in population. So basically, by adding 67,000 jobs we are treading water too slowly to keep our heads above water.
Moreover, as pointed out in the September issue of the National Federation of Independent Business’ (NFIB) Small Business Economic Trends, 45,000 of those 67,000 private sector jobs were in education and health care. These jobs are heavily dependent on government spending. That means these are not typical small business jobs on Main Street.
It is clear that small businesses remain pessimistic about the economy and are hesitant to hire new workers. According to NFIB’s most recent survey:
* A net negative 1 percent of business owners plan to create new jobs in the next three months;
* A net negative of 8% of business owners expect the economy to improve.
* Only 4% of business owners said it was a good time to expand
* A net negative 30 percent of owners reported higher earnings
This last component is especially important for businesses when it comes to hiring new employees, since businesses need to know that the revenue generated from the additional employee will exceed the cost.
Given the current unemployment rate, it is not surprising we are once again looking at ways to create jobs.
The question remains, are we going to continue to look to the government to be the job creator or are we going to realize that job creation and real economic growth come from the private sector?
The bill before us appears to recognize the importance of the private sector -- in particular, the importance of small business and entrepreneurs in getting our economy back on track and getting the employment numbers to move in the right direction.
I have been beating the drum for some time now that if we want to get our economy back on track, we need to focus on small business. After all, small business is responsible for creating 70% of the jobs in our economy.
During the debate on the $800 billion stimulus bill, I pointed out it contained too little in terms of provisions aimed at small business. In all, less than one-half of one percent of the stimulus bill was tax relief for small business.
Unfortunately, my concern that the stimulus bill provided too little relief to small business has proved correct. Since the stimulus bill was signed into law, small business has been hemorrhaging jobs.
According to ADP National Employment data, since the stimulus was enacted, small businesses, which are those with fewer than 500 employees, have lost a net amount of 2.6 million jobs.
During this same time large businesses, which are those with over 500 employees, lost a net amount of 716 thousand jobs. According to this data, small businesses have accounted for nearly 80 percent of the decline in employment since the stimulus bill was signed into law.
With the consideration of the small business package before us today, I hope that this body is finally starting to get serious about tackling unemployment through a true “jobs” bill.
Compared to previous stimulus or jobs bills promoted by the majority, this small business bill has a rather modest cost with the tax provisions totaling around $12 billion.
It is targeted at job creation by providing small businesses incentives to invest in new equipment, expand their operations and ultimately hire new employees. The bill includes provisions that would:
Encourage businesses to invest in new equipment and real property by increasing the amount of capital expenditures that small businesses can expense. For equipment the amount that can be expensed is increased to $500,000 and for real property it is $250,000. Moreover, it encourages investment by providing additional first-year bonus depreciation.
It promotes entrepreneurship by increasing the amount allowed as a deduction for start-up expenditures.
It increases access to capital by allowing 100 percent of gain from investment in qualified small business stock to be excluded from income. It also takes the general business credits out of the alternative minimum tax for those sole proprietorships, flow-throughs and non-publicly-traded C corporations with $50 million or less in annual gross receipts.
It also increases access to capital by extending the one-year carryback for general business credits to a five-year carryback for small businesses.
Finally, the bill promotes small business fairness by limiting harsh penalties that have been imposed on small business by the IRS and equalizing the tax benefits for health insurance that self-employed individuals may receive to those received by employees.
In regard to the Small Business Administration provisions, I strongly support many of the bipartisan provisions included in the bill. This legislation would increase small business lending by lowering small business loan program fees and raising loan guarantee and lending limits. Specifically, this bill extends the fee reductions and eliminations for the Small Business Administration’s 7(a) and 504 programs and the 90% loan guarantee limit for the SBA’s 7(a) program.
I’m pleased that these well-established, effective measures have been included in this bill.
Raising the 7(a) guarantee rate and reducing lenders’ and borrowers’ fees in the 7(a) and 504 loan programs have been enormously successful. These modifications, which expired in May, have led to a significant increase in lending capacity and access to capital.
I am a supporter, and in fact have been a leader of many of the bipartisan small business provisions in the current small business package. I’m an original cosponsor of S.3604, stand-alone legislation introduced by Senator Snowe, the Ranking Member of the Committee on Small Business and Entrepreneurship, which would extend the same Small Business Administration lending provisions.
Additionally, many of the small business tax incentives included in the small business package were taken from legislation I introduced last year, the Small Business Tax Relief Act of 2009. Of course there are differences and additional provisions that I would have liked to be included. But, as with any piece of legislation in the Senate, there is a need to compromise if you want to get anything done.
My bill generally would have made the small business tax provisions permanent. I believe this would have provided small businesses with certainty and promoted job creation over the short-run and the long-run. However, the Senate small business package generally only makes the tax provisions applicable for a one-year period.
I also would have liked to have seen an additional provision from my bill included in the final package. This provision would have provided small businesses with a 20% deduction off of their small business income.
It is unfortunate that this provision was left out. This was the largest and most important provision in my entire bill.
However, in all, the tax provisions included in the Senate small business package provide real relief to small business. They generally have support from members on both sides of the aisle. In fact, you would have thought this small business bill would have been a slam dunk. However, the Democratic leadership has used the small business bill as a political football to score political points.
Majority leader Reid refused to allow the small business bill to be considered under regular order. The Majority leader filled the amendment tree, thereby limiting amendments that could be offered.
The Democratic Leadership and the Administration then proceeded to blame Republicans for blocking relief for small business. This is despite the fact that the Democrats were unable to get their own members in line on the small business package. It still remains unclear whether the Democrats in the House, with their large majority, will pass the small business bill should it pass the Senate.
Moreover, the waters of the small business package were further dirtied by the inclusion of a controversial lending provision that would create a $30 billion lending fund. This fund is designed to provide billions of taxpayer dollars to banks for the purpose of making loans to small businesses.
To me, and to many experts, the fund resembles the TARP bailout program which has been badly mismanaged.
Elizabeth Warren, head of the TARP congressional oversight panel, expressed skepticism that the fund would be effective in increasing small business lending. She stated that, “such a fund runs the risk of creating moral hazard by encouraging banks to make loans to borrowers who are not creditworthy.''
The Special Inspector General of TARP stated that, “in terms of its basic designs, its participants, its application process, and, perhaps its funding source from an oversight perspective, the [small business Lending Fund] would essentially be an extension of TARP's Capital Purchase Program.”
There’s also disagreement about the cost of the program. Proponents argue that the lending fund will raise $1.1 billion. However, the Congressional Budget Office has indicated that if you score the fund on a fair value basis, the program would score as a cost to taxpayers of $6.2 billion. The CBO has indicated that the “fair-value” basis is a more comprehensive measure of the cost than estimates done on a cash basis.
Many members in this body voted for the Emergency Economic Stabilization Act in 2008 because we were led to believe that our economy was on the brink of failure.
We were told that the Treasury Department would purchase toxic assets, but after its passage, the executive branch changed course and picked winners and losers on Wall Street.
We shouldn’t be fooled again by the same officials at the Treasury who have mismanaged TARP and been less than transparent with the American people about how their money has been spent.
I compliment my friend, Chairman Baucus, for diligently pressing the tax proposals in this bill.
There are many good things in this bill, but I believe it could have been better.
Unfortunately, the Democratic leadership has been more interested in scoring political points than actually providing relief to small business.
If the majority was actually interested in passing small business relief, a small business package could have been put together that would have gathered 80, 90, or more votes. But, instead the majority leader filled the tree, prohibiting amendments from being offered to improve the bill.
The small business fund in the bill just doesn’t have the safeguards in place to ensure that recipients are credit worthy or that the taxpayers will be made whole in the end.
Should this bill be signed into law, I will do my part to make sure that the implementation is in the best interest of taxpayers as well as small businesses.
I yield the floor.
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