Is the American Jobs Act the Right Course for Small Business Growth?

While President Obama urged Congress to pass his $447 billion jobs bill combining tax cuts and new government spending, skepticism remains as to whether the package could kick-start the stalled economy and if it would indeed pay for itself as the President promised.

President Obama’s “American Jobs Act” proposals include a 50 percent cut in payroll taxes, incentives for businesses to hire returning veterans and people who have been unemployed for more than six months, and new spending on America’s infrastructure. The President said that the proposals would not increase the growing federal deficit, and that he has ambitions for long-term deficit reduction through spending cuts.

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Although the President’s intentions are good, the plan is unlikely to have the intended effect and may not even pass Congress. The plan is well intentioned, but a little off the mark.

  • The number-one issue right now is empowering entrepreneurs to start small businesses. To do that, they need capital. but banks simply aren’t lending. Many big banks have reserves on their books. President Obama should take a page out of Ronald Reagan’s 1987 playbook and vow to increase taxes on assets that are sitting idle if the banks do not reach certain small business lending plateaus.
  • Although the President insisted that his proposals would pay for themselves, he did not say how. There is a high likelihood that the measures will add to the growing government deficit, which puts a burden on the economy and small businesses in particular.
  • When government revenues don’t match its spending, it looks to increase revenue. My fear is that small business owners will suffer. Entrepreneurs don’t have lobbyists like big corporations do and thus are less likely to sway government leaders against taxing their businesses.
  • Providing incentives for hiring returning soldiers is a worthy and sincere aspiration. However, the reality is that many veterans do not have the job skills to compete in today’s technology-driven economy. Any proposals should include some sort of training for veterans so that they can develop marketable skills – a 21st century G.I. Bill, so to speak. When people have skills they get hired. The same applies to long-time unemployed workers.

There are three things the President should have suggested, but did not:

1. Provide ncentives for small business lending. Tax incentives for hiring are nice, but if you don’t have capital to launch the business, they do no good.

2. Encourage foreign direct investment into new businesses. China has been very good at this. New companies create jobs.

3. Focus on reducing the deficit, which is a time bomb. Who will be most likely to pay the piper? Small business owners, who don’t have lobbyists and are an easy target for higher taxes and increased fees. (It won’t be the poor or the big corporations that pay.) A large government deficit limits access to capital for the private sector in general and small businesses in particular, as they do not have access to public markets. The deficit is exactly the opposite of what small businesses need to help bring America out of its stagnant economy.

President Obama is correct in saying, “Ultimately, our recovery will be driven not by Washington, but by our businesses and our workers.” In order to do that, small businesses need an environment in which they can grow. He also was right when he admitted that people cannot wait 14 months until the next Presidential election for the economy to turn around. While the new measures would likely spur employment (currently at 9.1 percent) and some growth, they are not enough to solve the country’s economic woes.

7 Comments ▼

Rohit Arora


Rohit Arora Rohit Arora, CEO and Co-founder of Biz2Credit, is one of the country's leading experts in small business finance. Since its founding in 2007, Biz2Credit has arranged $800M in small business loans and has helped thousands of entrepreneurs. Rohit was named Crain's NY Business "Entrepreneur of the Year 2011."

7 Reactions

  1. With all the interest our government is paying, you’d think someone would say “Hey, let’s pay off the debt and then we can use that money to improve infrastructure, etc.” Every personal finance class teaches about interest and debt so why can’t the federal government seem to figure it out?

  2. Kip Marlow

    Excellent article. I doubt another jobs program would work. Reducing the deficit and getting Federal spending under control is an imperative. Entrepreneurs need to feel confident and certain about our economic future. Spending control would be a huge step in the right direction.

  3. Great article. Unfortunately, a lot of the politicians do nothing but double speak. They understand that small businesses are the life blood of the economy, but then they turn around and pass taxes and laws that make it harder for small businesses to thrive, or pass plans that give no incentives. If a business is spending more than it’s taking in, the last thing it would do is raise prices on its customers. Finding ways to cut cost and be more efficient internally is the best way to save money. Businesses know this, why can’t the government see this?

  4. Kip Marlow

    Mr. Bachmann, thanks for the comment. Maybe our politicians should stay our of the faculty lounge and enter the real world.

  5. Rohit was very accurate to zone in on 3 things politicians could do to really boost small business growth and create real new jobs. But our present gang of fakes will not do anything to actually help, because they do not want to and if they did they have no idea how. Obama and his overeducated self-interested advisors have never had to face the fear of being able to meet payroll, or of having to create profits and operate within a budget by NOT spending more than they have. Yet, they are so arrogant and so focused on political power that they are pushing another massive government spending to impose more regulatory controls over the actual operations of small businesses, all in the hyped name of increasing jobs. Obama continues to act like Marie Antoinette of France by taking all of the money from the government treasury to fund his own self-serving pet political projects. I do not feel Obama has good intentions.

    His supposed $4,000 credit to small business owners will not sway any semi smart business owner to hire another employee. In fact, smart business owners will AVOID hiring new employees by accessing this unknown credit. Why? Because the business owners must fully understand the confusing rules, record all steps necessary to PROVE complete compliance, and be instantly ready to open their books and records to the many newly hired governmental bureaucrats who are in charge of dispensing, tracking, auditing and investigating the handling of these $4,000 credits. No business owner will want those jobs, those costs, and that exposure to Obama’s regulators. So Obama’s new spending spree will create thousands of new jobs for the ever-increasing Federal bureaucracy, all the while further bankrupting the country. And in grand Obama tradition these new bureaucrats will be forced to join the union to generate even more union collected campaign contributions and more votes for King Obama, all funded by taxpayers and the creditors of US debt. Give Obama credit for trying to use the very disastrous economic situation he created to generate an even greater gravy train for him, while creating more problems for everyone.

  6. I just had to write in response to the comments already posted. The misinformation is knee-deep and rising. Reagan proved, and it was affirmed by Cheney, that deficits don’t really matter. In fact, almost half the current deficit came under GW Bush ($6 trillion). If you remember, Bush left office leaving the economy in the worst shape it has been in since 1929, after entering the white house with a surplus in the budget. Now every conservative wants to slide the blame for the Bush administrations disastrous economic policies to the current administration.
    If you look back, every presidents response to a recession has been to increase spending, including Reagan. They do this because it works. It may not be instant, but you have to remember, we had an economy that in 2008 was on the verge of collapse. The administration was threatening congress that if they didn’t approve the bailout, there would be martial law. Then when congress voted against it anyway, the administration pulled a fast one and went behind everyone’s back to fund the banks. To blame the current president for the current situation is insanity. You have to remember that the republican party has attempted to stonewall, delay, and impede every policy attempted to meet this crisis under president Obama. Is this the party that you really want, one who would sacrifice you and your fellow americans in the name of political one-up-manship? The republicans keep saying they want tax cuts, yet the reality is they only want tax cuts they propose, once again showing their true colors.
    To Bill, you seem to be against tax cuts, and use some convoluted logic to explain why. Why would the IRS have to hire new people to administer these tax cuts? What you say doesn’t make sense. Can you show any confirmation of your “facts”? And does your rant mean you will continue to pay the 6.2% tax rate if the bill is passed? You know, so you don’t bankrupt the country? The willingness of these people to cut off their nose to spite their face apparently knows no bounds. For me, I will take advantage of any tax cut I can get. That is, of course, if the republicans let it pass.
    To Mr. Arora, in one part of your article, you say the banks have plenty of money to loan, but then you say at the end that we should concentrate on the deficit to increase the amount of money available to small business. How will reducing the deficit get banks to lend to small business when they already won’t loan the money they have?
    What we really need is a healthy middle class. Who are our customers? Mine are mostly middle class americans. The more money they have the better my business does. Some say you can cut your way to prosperity, but I disagree. You get prosperity by increasing customer base. You can sell the best, cheapest product or service around, but if no one has money to spend on it, what good is it? Continued out-sourcing and reducing wages is not going to help us. We need more money in our community, not less, and we need it spread around, not concentrated in a few people who will buy german cars and italian marble and chinese stocks.

  7. There are three things the President should have suggested, but did not:

    1. Provide ncentives for small business lending. Tax incentives for hiring are nice, but if you don’t have capital to launch the business, they do no good.

    DONT YOU THINK THAT THIS WOULD MAKE BANKS START MAKING BAD LOANS JUST SO THEY CAN RECEIVE THESE INCENTIVES? I THINK THIS SOUNDS LIKE THE CLINTON COMMUNITY REINVESTMETN ACT (the catylst to the housing bubble).

    WHEN U START MAKING REGUALTIONS FOR INCENTIVES, BANKS DO WHAT EVER THEY CAN TO HIT THESE INCENTIVES (i.e BAD LOANS).

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