Why Helping Small Business Helps the Country

John Kabateck
NFIB State Director in California

When President Bush outlined his principles for an economic stimulus plan, he emphasized the need to help small businesses. He reiterated that theme in his State of the Union message.

There’s a good reason for that: Small businesses are creating the bulk of the new jobs in this country.

You might have missed that news amidst the recent front-page reporting of economic gloom and doom and headlines about interest rate cuts. Businesses with fewer than 50 employees actually added 66,000 jobs in December. During 2007, small businesses added a total of 716,000 jobs, according to the ADP National Employment Report, which tracks the payroll data of several hundred thousand businesses. In fact, the firm says that in 11 of the past 12 months, small businesses added more jobs than medium- and large-size businesses combined.

If American small businesses were a separate economy, it would be the world’s third-largest, trailing only the U.S. as a whole and Japan. Small business produces roughly half of the private Gross Domestic Product and, as the numbers demonstrate, clearly continues to drive our economic growth.

At the same time, entrepreneurs read newspapers and watch television like every other American, and there are indications that they’re starting to get a little unnerved by the economic news. So it’s a good time to consider an economic stimulus package to avoid a recession, which Congress is now doing.

One of the most important provisions included in the stimulus package is doubling the dollar amount for small-business expensing limits from $125,000 to $250,000. This will allow small-business owners to immediately write off investments in their business and will help small-business owners expand their businesses, as was demonstrated several years ago when expensing was increased to $100,000.

Another key provision included in the economic stimulus package is a 50 percent bonus depreciation deduction. Bonus depreciation is another incentive for businesses to invest in their business now, providing an immediate deduction for half the cost of the investment.

These are both good starts and policymakers are right to want to move quickly to get this package passed.

In addition to action on the economic stimulus plan, Congress intends to consider overhauling the tax code later this year. At that time, Congress should act to give permanent relief to small-business owners. For example, most small businesses file as S-corporations, which pay the same tax rates as individuals. These rates were slashed in 2003, but only until 2010. Making those tax cuts permanent and avoiding any future increases will be a great help to millions of small-business owners.

In addition, entrepreneurs are treated differently than Americans who receive their health care benefits from a corporation. They are not permitted to deduct health care costs from their wage base for self-employment taxes. Simply put, they’re forced to pay higher taxes because they’re self-employed. This tax bias should be eliminated to help make health insurance more affordable.

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