Small businesses leery of Obama's jobs plan

By Ylan Q. Mui and David Cho
Washington Post Staff Writer
Friday, January 29, 2010; A14

President Obama's plan to combat the country's double-digit unemployment rate hinges on a package of small-business loans and tax incentives that some company owners worry won't be enough to spur hiring.

Similar proposals have already been considered by Congress and discarded. And a main trade group for small business said Thursday that even if the package materializes, it expects the impact to be marginal at best.

"We are skeptical," said Bill Rys, tax counsel for the National Federation of Independent Business. "Until you have customers coming in the door, you're going to have less of a reason to hire."

Ken Sickmen, who owns Belmont TV stores in Arlington, Wheaton and Laurel, said he wouldn't take on new employees unless there was work for them to do. His sales have suffered as consumers cut back spending, and he recently laid off employees for the first time in the company's 65 years. "We could've continued to pay them, but we didn't need them," he said. "The business wasn't there."

In his State of the Union address on Wednesday, Obama outlined four central proposals aimed at small businesses: eliminating the capital gains tax, bolstering lending with $30 billion in federal rescue money, and establishing tax credits for new hires and for investments in equipment and facilities.

But reviving lending to small businesses has bedeviled the administration's economic team since early last year. In the latest iteration of the proposal, the White House plans to ask Congress to modify the law so that the banks taking aid to help small businesses would not face restrictions, such as limits on executive pay. The program would also be rebranded, so banks would not face the stigma of taking money from the highly unpopular Troubled Assets Relief Program.

"The president made crystal clear his commitment to transfer tens of billions of TARP funds to a new program to help as many small banks as possible help as many small businesses as possible get the credit they need to grow and create jobs," said Gene Sperling, a counselor to Treasury Secretary Timothy F. Geithner.

Lawmakers unconvinced

But Rep. Nydia M. Velázquez (D-N.Y.), the chairwoman of the House Committee on Small Business, wasn't convinced the program would work.

"All of the efforts so far have focused on helping banks, and yet small businesses still can't find affordable loans," Velázquez said.

Lenders say they are caught between conflicting government demands. On one hand, the administration is telling them to boost lending. But regulators are also pressing them to build up their capital reserves to prepare for an expected sharp downturn in commercial real estate. That saps the amount of money they can lend to small businesses, many of which are risky borrowers.

"You get this schizophrenic message coming out of the administration and Congress," said Camden Fine, president of the Independent Community Bankers of America. "In any given week, you may hear them say, 'Lend, lend, lend.' And then you may hear, 'We have to crack down on these bankers.' . . . What happens? The bankers hunker down."

Tax credit planned

In addition to lending initiatives, Obama is planning to call for a $5,000 tax credit for new hires during an appearance in Baltimore on Friday. But House lawmakers had already considered a similar credit last year. They did not include it in the final bill committing $154 billion for job creation. That bill narrowly passed last month and did not win any Republican votes.

House Speaker Nancy Pelosi (D-Calif.) said Thursday that she would consider the proposals if they were included in the Senate version of the legislation, which is slated to be outlined next week. An aide to a senior Senate Democrat said no decision has been made on whether the tax credits would be included.

The NFIB said it welcomed the credits but remained unsure of the potential long-term benefits. The group has pushed instead for payroll tax holidays for both employers and workers and for lowering the personal income tax rate to spur spending.

Less contentious are Obama's proposals to give tax credits for capital investments and to eliminate the capital gains tax for small businesses. Versions of both plans were approved in last year's stimulus legislation and are up for renewal. The law increased the amount of capital investments that small businesses could write off from $137,500 to $250,000. It also allowed small companies to pay only 25 percent of their capital gains taxes.

Several bills are being drafted to address the president's proposals. Sens. Charles E. Schumer (D-N.Y.) and Orrin G. Hatch (R-Utah) plan to submit legislation that would give employers tax credits for hiring people who have been unemployed for at least 60 days. Sen. Benjamin L. Cardin (D-Md.) introduced a bill this week that would funnel the $30 billion in federal rescue money through the Small Business Administration to disburse directly to small businesses, among other things. That provision mirrors a bill that overwhelmingly passed the House in October but stalled in the Senate.

"There is a growing confidence in the economy," Cardin said Thursday. "But that has not translated to jobs."

NFIB said its members have been reluctant to invest in new equipment and employees because they remain wary of the country's nascent recovery. The group's monthly index of small-business optimism dipped 0.3 points, to 88, in December and has remained below 90 for 15 months. Any number less than 100 reflects a lack of optimism.

"Politicians do not create new jobs," NFIB chief executive Dan Danner said. "Jobs will be created by hardworking small-business- men and women when these entrepreneurs have enough confidence to take the calculated risks needed to expand their businesses."

View all comments that have been posted about this article.

© 2010 The Washington Post Company