Small Business Tax Incentives

5/26/10 - Obama has urged Congress to pass a bill designed to increase lending to small businesses. The president spoke before a group of small-business owners gathered at the White House. The legislation would create a $30 billion fund to encourage community banks to lend to small businesses.

Recent Obama Quotes:

 "Government can't create jobs, but it can help create the conditions for small businesses to grow and thrive and hire more workers."

The legislation will help the government "knock down the barriers that prevent small-business owners from getting loans or investing in the future."

"This is an issue of putting our government on the side of the small-business owners who create most of the jobs in this country."

"It's about unleashing the great power of our economy, and the ingenuity of our people."

Here is my analysis of the provisions contained in his proposal:

Overall, the proposal is a mixture of economic stimulus strategies. Without detailed analysis it is hard to determine which ones will work and how effective they will become.

However, I can give you a gut feeling reaction as follows:

Health Care Tax Credits - worthless unless small business hires. Still cheaper to buy equipment to increase productivity and use 1099 employees who may be located out the country.

Zero Capital Gains - may be something here. One year holding period may not work for first-line investors (angels). Might work for second line investors (mezzanine). Strong tax incentive for people who hold for a long-period of time and insider management. However, as long as it is tied to hiring people, small business will probably ignore it for decision-making purposes.

Loan Programs - worthless unless small business owners need to borrow. My research, including personal experience, indicates that small business does not want to borrow or incur additional debt. They need equity and partners to compete against large corporations.

High-Tech Research - good idea but will not pay off for 5-10 years.

Public-Private Business Incubators - We already have SCORE and University Research Labs. Does not make sense to create a new form of partnership. Better to provide better SCORE leaders who understand entrepreneurship and allow professors at public universities to share in future sales of their ideas.

Women-Owned Small Business - this is a typical bone thrown out every year to say Woman need additional support. This picks a particular class of entrepreneur and says they need more help over others. Very discriminatory. Why not target young people, old white people? It does not make sense. Good political soundbite.

Minority Access to Capital - will not work as long as corporate banks make lending decisions. In order to work, government has to lend the money directly. So far, they have never done a great job as evidenced by Sallie Mae, Freddie Mac, and Fannie Mae. Good political soundbite.

Small-Business in Communications Industry - Obama wants small business to get better access to media ops. Difficult is coming up with money to put together shows and content worthy of competing against large networks. Most working capital would not be eligible for non-collateralizable investments. Good political soundbite without direction to make it work.

Hurricane Katrina Support - A perennial favorite to attract investment into Louisiana. Problem is that they have an oil spill going on that is out of control. Most investors want to avoid Louisiana not knowing whether more people are going to leave and whether the pristine beaches will survive.

Emergency Relief - proposed legislation tied to heating oil, natural gas, propane and kerosene. Energy prices keep dropping. This legislation makes no sense and has no overall value other than look good to people who are desperate for help.

Rural Small Business - Training and technical assistance to new employees. Might help the lower rung of job seekers. Will not create a lot of economic value when the same service can be acquire cheaper overseas.

Digital Inclusion - Bring internet to rural, urban and minority communities. Good political idea. However, competes against Corporate America and attempts to give hope to those who have other debt encumbrances with underwater mortgages, and unpaid credit cards.

Overall, it appears to look like a vaccine trying to find an unidentified virus.