Tax Credit Should Go To Small Businesses
Politicians of both parties are unanimous in calling for action to help improve economic conditions in the United States. Well, I’ve got a better answer. If you want to stimulate the economy, stimulate small business. If we strengthen small business, we strengthen America.
Here’s my simple proposal: Give small businesses a tax credit for hiring their first employee or, for companies with fewer than 25 employees, adding new employees.
First, recognize that small business is the backbone of the United States economy. While news reports focus on Wall Street and Dow Jones averages, in most small and mid-size communities in the U.S., small business is the only business. More than half of all employees in the United States are employed by small firms.
Proposals to give cash rebates to individuals are only the shortest of short-term measures, designed more to improve politicians’ poll numbers than the numbers on businesses’ balance sheets. And tax incentives for huge corporations won’t reach Main Street.
What we need is to put money directly in the bank accounts of small companies when they hire.
Consider these statistics, all from the U.S. Census Bureau: Of the nearly 27 million businesses in the United States, what’s the total number of companies with more than 100 employees? Only slightly more than 100,000. Small businesses make up 99.7 percent of all employer firms.
The majority of the nation’s businesses actually have no employees — think of all those self-employed consultants, hairdressers, attorneys, plumbers, graphic designers. In 2005, there were more than 20 million non-employer businesses in the United States, with total revenues closing in on a trillion dollars. Those numbers are probably higher now.
What would happen if we could stimulate even 1 percent of these non-employer businesses to hire their first employee? We’d create 200,000 new jobs.
That’s a huge number — 20 percent of all jobs created in 2007. According to the Bureau of Labor Statistics, 1,054,000 non-farm, private-sector jobs were created in 2007.
On top of that, it’s likely that many other new jobs would be created once these one-person businesses started to grow. Not to mention the boost to the economy from all those businesses buying new equipment, software, office furniture and renting office space.
But it’s hard to hire your first employee. It took me years before I was willing to face the burden of added paperwork, paying payroll taxes, providing health insurance.
Tax incentives could encourage one-person businesses to overcome those hurdles. If 2008 were the year they could get a one-time tax credit for hiring an employee, the small business community would be sizzling with suggestions, advice and encouragement to those on the brink of growth.
Small-business owners, even more than huge corporations, hate laying anyone off. Instead, they put off hiring until there’s a very good reason.
It’s important to recognize that small companies need tax credits as a stimulus, not merely new deductions. (A tax credit is an amount directly applied to reduce your tax liability or becomes a tax rebate if you do not have a liability; a deduction is less beneficial.)
So here are my simple proposals:
A significant tax credit to one-person, non-employer businesses — let’s say 20 percent to 30 percent of the first year’s payroll — for their very first hire.
A meaningful tax credit — let’s say 10 percent to 20 percent — to businesses currently with fewer than 25 employees for the 2008 payroll of each new hire.
You want to stimulate the economy? Create jobs. Want to create jobs? Help small business employ more people. It’s that simple.
Rhonda Abrams is the author of “Six-Week Start-Up” and “What Business Should I Start?”
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