Save Our Small Businesses Sensibly!

As a reminder, Dr. Dunkelberg, our guest blogger, is Chief Economist for the National Federation of Independent Business.

The administration has, at long last, recognized the importance of small business to the health of the American economy. Collectively, small businesses produce half of the private sector GDP and employ well over half of the private sector workforce. They are the creators of most of the new jobs as well.

Sadly, but no surprise, the government is going to rely on another government agency, the SBA, to possibly make funds available to “mom and pops” from the now widely abused (by the politicians) TARP funds. For starters, fewer than 1 percent of all small businesses have a government-sponsored loan. So, the SBA reaches relatively few small businesses and the SBA loan programs are primarily administered by the large, now troubled, banks since the paperwork burdens are substantial. So, most of the 8,000 banks that serve small firms don’t make SBA loans.

The best way to get money into the hands of our nation’s small business job creators is to give it to their customers. Small businesses need customers, not more debt. There was strong support for a tax holiday as a stimulus plan. This would have immediately put money into the pockets of consumers (and small business owners paying all of the FICA tax), a chunk of which would be spent. If consumers saved some, all the better, as the need for savings by our banks is critical as illustrated by the large banks like GE, GMAC, Wachovia and others paying very high rates to attract savings deposits (which made it difficult for small banks to get the funds to lend to their small business customers). Alas, too logical, and not enough pork to hand out that way.

Instead we have a $787 billion “stimulus” bill, little of which has been spent, much of which is allocated to 8,000-odd special pork projects. Can’t wait for work to start on that LA-to-Las Vegas high speed railroad for Senate Majority Leader Reid. What a job generator that one.

A tax cut would have delivered a huge stimulus 6 months ago and would still be fattening paychecks, making labor cheaper to retain or hire, and boosting spending and saving, both of which are needed. Instead, the government is competing with private businesses for available savings to finance a deficit that could approach $2 trillion. Go figure.

P.S. Goldman got a bailout, let’s see what happens to CIT, a “main street” lender.