“It is not by augmenting the capital of the country, but by rendering a greater part of that capital active and productive than would otherwise be so, that the most judicious operations of banking can increase the industry of the country.”
With more than 99 percent of American businesses employing less than 500 employees and responsible for two-thirds of private sector job creation, it is reasonable to attach hopes of a broad economic recovery to the prosperity of America’s small business community. Unfortunately, the Obama Administration and Congressional Democrats have ignored the challenges facing small business owners and continue to pursue policies of excessive government spending and regulations. One recent misstep was the House-approved H.R. 5297, widely known as “TARP 3.0.” TARP 3.0 would give the Treasury Department $30 billion of taxpayer money and would authorize the Treasury Secretary to make capital investments in small banks (less than $10 billion in assets) to “increase the availability of credit for small businesses.” Those banks would be charged dividends or interest of 5 percent yearly. Those rates would then be reduced based on the bank’s level of small business lending. The bill is now being considered by the Senate. Despite Democrats’ insistence that this legislation is a small business cure-all, the Congressional Oversight Panel noted that the Small Business Lending Fund’s (SBLF) “prospects are far from certain.”
ISSUES OF CONCERN
Ready…Fire…Aim: In May 2010, the Congressional Oversight Panel reported on the effect of TARP in the small business credit crunch. The report points out that sub-normal levels of small business lending could be driven by a number of factors, including fewer financially sound businesses in a tightened underwriting environment or less demand for loans by businesses cutting costs and facing lower sales—not just the lack of capital on the part of lenders, as Democrat policies assume. The Panel casts doubt on Treasury’s intent to increase the supply of credit; rather, the report instructs the Treasury to refine its data gathering and reporting so “policymakers will not be forced to make decisions with too little information about what is actually happening.” In supplemental comments to the report, Panel member Mark McWatters wrote, “As long as businesses are faced with the multiple challenges of…enhanced political risk associated with unpredictable governmental interventions in the private sector, and uncertain health care and energy costs, it is unlikely that they will enthusiastically assume the entrepreneurial risk necessary for protracted economic expansion.”
Bringing a Sword to a Gunfight: In a report released earlier this year titled “Small Business Credit in a Deep Recession,” the National Federation of Independent Business made the following conclusion regarding the policy response to the financial crisis and recession: “Both ends of Pennsylvania Avenue have done little to stimulate sales, knowingly initiated major destabilizing policy changes in a deep, destabilizing recession, lost interest in working out real estate issues, and chose instead the ineffective route to increase small business access to credit by increasing the number and size of Small Business Administration (SBA) loans, the latter being a bit like using a garden hose to put out a house fire.” This indictment of Democrats’ small business agenda could not be any clearer. Spending more taxpayer money to flood already re-capitalized small banks only adds to our unsustainable debt and does not address the major concerns of small business owners such as predictable market demand and spending cycles, calculable tax costs, and straightforward regulatory requirements.
The Fog of War: Uncertainty is the term most frequently used today in discussing small business owners’ frustrations in the current economy. Businesses are asking: Will Democrats raise my taxes on January 1, 2011? What will the 243 new federal rule-makings required in the Democrats’ Wall Street reform law mean to the banks and insurance firms I do business with? How will Obamacare impact healthcare costs for my firm? What will continued government spending growth do to long-term interest rates? Will Democrats raise energy costs in a lame duck session of Congress? The ambiguity in Democrats’ approach to remaking the economy signals small business owners to conserve cash and adopt a wait-and-see attitude regarding the ultimate impact of changing tax liabilities, rule changes, and health care costs—the net impact of this uncertainty depresses demand for business loans, delaying hiring and expansion.