Helping or Hurting Small Business?

With a 61-37 vote to end debate, the Senate is set to assist small business with small legislation that establishes a $30 billion lending fund and $12 billion in tax breaks for small business. The tax breaks consist mainly of a bonus depreciation provision that would allow companies to write off assets more quickly. The bill creates a lending fund to be directed to help community banks make loans to small business. The bill is set up like a mini-TARP program that provides capital injections into community banks that want to participate.

It provides guidelines and stipulations for participation that are complicated. It's so complicated that the Congressional Budget office had difficulty putting a price tag on the cost of the program. One estimate has the $30 billion program saving taxpayers $1.1 billion over ten years and another estimate has it costing $6.2 billion.

The question with government action is whether this is the most efficient and expedited way to assist small business.

A National Federation of Small Business survey finds that raising the tax rates on the top two income brackets also has a negative impact on small business job creation. "Based on an NFIB small business survey, the businesses most likely to face a tax increase by raising the top two rates are businesses employing between 20 and 250 employees. According to U.S. Census data, businesses with between 20 and 299 workers employ more than 25 percent of the total workforce."

Today on CNBC's Squawk Box, White House ......Larry Summers made the argument that cutting taxes is not the most efficient way to assist small business and that their R&D tax credit extension and their increased depreciation schedule proposal are better for this goal. I think he's on to something, but he misses the point. If this is where the administration wants to go, then the most efficient way to assist small business is to cut their costs of doing business.

This can be done by eliminating things like the "1099" provision in the health care bill and by cutting their taxes. The more complicated legislation becomes to assist small business, the less effective it will be in assisting them. While it's encouraging to see the Obama administration take steps to help small business, they need to disabuse themselves of the thought that targeted policy works better than the individual decisions of business owners.