It’s not that there nothing left to be said about them. But, in order to get at that other stuff there is to be said about them, I’m going to have to do a lot more research and I’m going to have to do it from a different perspective.

Otherwise, I’m going to start repeating myself — always assuming I haven’t started doing that already.

Before I sign off permanently, I want to summarize, and at the same time offer you, my view of where the microbusiness trends of the last fifteen years seem to be taking us.

The proliferation of microbusinesses has been variously ignored, trivialized and discouraged by many policymakers and economists. The policymakers don’t like microbusinesses because it’s too hard to keep tabs on people when they aren’t working for larger businesses, and preferably large corporations. The economists don’t like microbusinesses because, they say, microbusinesses are inefficient.

The disapproval of the policymakers and the economists has had no discernible effect on the numbers. As the technology has developed to increase productivity beyond the wildest imaginings of the last century, barriers to entry in many industries evaporated. Microbusiness population numbers gauge reaction to the developing technology.

Nonemployers led the charge: those single-person businesses increased in population by 29% between 1998 and 2010 (the most recent year for which we have complete numbers), compared with 2.7% growth in employer numbers over the period.

There is relatively little research on small businesses in general, and even less on microbusinesses, so it has been difficult for anyone to get a grip on their evolving role in the overall economy. What little we know, however, seems significant.

We have seen that they tend to weather asset-based economic downturns, like the 2002 recession, fairly well and can even reduce the impact on the labor market. That, in turn, causes the recession to be shorter and the trough to be shallower and easier for the economy to climb out of.

In addition, to the extent that microbusiness owners (and, particularly, nonemployer business owners) create jobs for themselves whenever they launch such a venture, it can be said that they improve the health of the labor market.

As a matter of fact, I think it makes sense to view the microbusiness phenomenon as a labor market trend. A large number of microbusinesses, possibly most of them, fall into the category independent contractors — part of the contingent workforce. It is a segment of the workforce that is gaining in size and strength, their increasing popularity a function of the cost savings they offer their client businesses.

As governments demand more and more from businesses in an uneasy social safety net partnership, the contingent workforce will become more and more attractive to those businesses.

The businesses will like the arrangement and so will the contractors. The governments won’t and it will be both interesting and instructive to note what, if anything, they decide to do about it.

From the point of view of microeconomic theory, the microbusiness phenomenon makes little sense. So many of them (especially the nonemployers) make so little money that it seems doubtful they are even covering their marginal costs, even in light of how little it can cost to run a nonemployer consulting firm or virtual publishing company. And yet, these little businesses are not fly-by-night, ephemeral entities.

A lot of them fail, but a lot of them last for 10 years and more.

Clearly, people who launch and operate microbusinesses gain more from their enterprises than mere money. It may be difficult to quantify that fact and insert it into a production function equation but it also means that microbusinesses, as a firm size class, aren’t going anywhere.

As nonemployers become a larger portion of the workforce, they will increasingly become of a force that must be reckoned with.

As microbusinesses become a larger portion of employer businesses, as non-micro small firms grow ever fewer in number, and as firms of all sizes trend smaller, policymakers will need to rethink their fiscal policy strategies for job creation and retention.

And economists are going to have to stop complaining about the inefficiencies of microbusinesses and start figuring out where they fit in the big picture.

Even more fundamentally, microbusiness ownership is poised to have major impacts on life in these United States — not just economically but culturally and socially. This is a shift that, in retrospect, will be as huge as the changes brought about by the Industrial Revolution. Microbusinesses are changing the way we work and that is changing the way we live.

It’s difficult to overstate the significance of that.

Leaving for the Future Photo via Shutterstock

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The deal that the President and Congress put together to force each other to deal with expiring tax cuts at the beginning of this year seemed like a strategy that was doomed to failure.

The fundamental disagreement was simple and fairly typical: Democrats wanted to preserve middle-class tax cuts, raise taxes on the rich and preserve as much domestic spending as possible, while Republicans wanted to preserve all the tax cuts and find savings by cutting social programs and other non-defense discretionary spending.

It doesn’t often get much more unambiguously partisan than that.

In the end, circumstances forced the Republicans to meet the President halfway, giving him a final legislative victory just before showing the 112th Congress the door. I’m guessing that it’s easier to stand your ground when you have a campaign promise to keep and you are not the lame duck in the room.

I’d bet that almost everybody involved is sorely relieved. Except, perhaps, House Republicans.

The final compromised reached largely between Senate Republicans, led by Minority Leader Mitch McConnell (R-KY) and his former foe and colleague, Vice-President Joe Biden, calls for the Bush tax cuts to be made permanent for couples earning less than $450,000 per year ($400,000 for individuals). Capital gains taxes would remain at the 15% level for those lower income households, while the upper income crowd would see their income tax rate increase from 35% to 39.6% and their capital gains tax rate would climb to 20%.

House Republicans, in an attempt to take their lemons and make whiskey sours, are claiming victory and vindication because Democrats finally caved and made even some of the Bush tax cuts permanent — which President Bush was counting on all along. And, even though the more liberal Democrats view the President’s compromise as yet another failure on his part to hold out for left-wing purity, they are hailing the tax increase as a victory and an early instance of President Obama keeping a campaign promise.

In the meantime, you might be forgiven for wondering if there is anything in this legislative bally-hoo that will be of benefit to microbusiness owners.

Back in mid-December, the National Association for the Self-Employed (NASE), the only national advocacy organization specifically for microbusinesses, expressed its unhappiness with the evident inability of Congress to get its act together to avoid a tax hike that will hit middle-class microbusiness owners right where it hurts.

According to the NASE’s analysis of the impact of inaction, microbusiness owners earning between $60,000 and $88,000 would have been looking at a tax hike of between $2700 and $3700 per year.

Of course, most microbusinesses don’t actually make that much money. The overwhelming majority of them are nonemployers and their average annual earnings, as of 2010, were about $43,000 per year.

So, while there are some high earners among microbusiness owners who might be disappointed at this legislative turn of events, the majority of them will benefit from getting to keep their current tax rates intact.

The rest of the supposedly small-business-friendly items in this legislation — such as a temporary extension of the $500,000 Section 179 expensing cap and the R&D tax credit, a permanent estate tax exemption of $5 million (indexed to inflation), a permanent “fix” for the alternative minimum tax (the AMT won’t kick in until a couple filing jointly reaches an earnings level of $78,750, also indexed to inflation) — won’t apply to most small businesses.

And some small business advocates are disappointed at what they are calling a stop-gap measure that falls well sure of a much-needed comprehensive overhaul of the tax system.

Said Todd McCracken, President of the National Small Business Association, in a press release:

“While the permanent extension for the lower tax rates is a positive, tax increases—at any level—should only have been done within the context of broad tax reform.”

The NASE has not yet released a statement in response to the fiscal cliff deal.

Fiscal Cliff Photo via Shutterstock

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My only complaint about them is that they are not required or requested to go back and look at tax policy to make sure it accomplishes what it was designed to accomplish. If I had to guess, I’d say there are probably some folks on Capitol Hill who don’t care whether it accomplishes its goals or not, because they have ideology to defend and never mind the practical concerns involved with running the country.

But that’s a different article.

The GAO was just doing its job when it recently released a report on the implementation of a couple of new Treasury Department small business lending programs created through the Small business Jobs Act of 2010. The two programs are the Small Business Lending Fund (SBLF) and the State Small Business Credit Initiative (SSBCI) and they appear to be doing mostly okay.

The SBLF provides capital to small banks — defined as qualifying banks with less than $10 billion in assets and comprised of local community banks and community development loan funds — in order to encourage them to increase their lending to small businesses. The SSBCI supports state and municipality small business lending programs that operate on much the same premise as the SBA small business lending programs do. These are state and local programs that provide loans to creditworthy small firms and manufacturers that cannot (for unspecified reasons) otherwise get credit.

Naturally, the Treasury Department has developed processes and procedures in order to monitor participating banks’ compliance with the legal and reporting requirements of the SBLF program. There are also such requirements for the financial institutions with which the states partner if they want to use SSBCI funds within the context of that relationship. The GAO’s last audit of the programs recommended those procedures and so they were happy to see that Treasury took at least some of their advice.

Meanwhile, the programs appear to have had some measurable impact. On average, SBLF participants increased their total business lending by 31% and increased small business loans under $1 million by 14%. The SSBCI program has not made quite the same impact, at least in the context of what has been used versus what was made available. States have used about 10% of program funds so far and the law provides that Treasury can (but doesn’t have to) terminate funds that haven’t been allocated to states with two years of that state’s participation in the program.

In this most recent annual report, the GAO notes that the Treasury Department has had some reporting issues with both programs. It’s methodology in its evaluation of the SBLF program, the results of which were publishined in a report to Congress, had some problems that the GAO found appeared to overreport the impact of the program. SBLF officials, in response to teh GAO’s findings, said they are continuing to evaluate possible evalutation methods, including possibly collecting additional data from a sample of participating financial institutions.

Meanwhile, another set of stuff Treasury has yet to do concerns the SSBCI program. For starters, they haven’t figured out what their procedure is going to be for terminating state funds that have not been allocated to states with the 2 year timeframe. Treasury officials say they currently have no intention of using this authority but, as the GAO points out, just because you aren’t going to do it right now, that doesn’t mean you don’t need to figure out how it will be done later or down the line or under another Administration. The proceedure should be developed, finalized and written out whether it is used now or not.

Another problem with the SSBCI is that, while Treasury has developed performance measures for the program, they have not yet figured out how to make the information public. (I wonder if that sounds as strange to you as it does to me? How hard is it to figure out how to publicize this information?) The information is shared with the states “through conferences and technical assistance,” but apparently it is not written down in a form in which it can be of real use to either the states, the Congress or the voting public. The GAO seems to object to that.

In light of the probability that these programs are gonig to continue to operate at least during the current Administration, it would probably be a good thing for Treasury to get its reporting act together. With all the talk of fiscal cliffs and looming budget cuts, every program is going to have to justify its existence and, if these programs are really helping firms to stay afloat and create jobs, then Treasury should be shouting that news from every rooftop in Washington.

United States flag with american money Photo via Shutterstock

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The survey, in which more than 1500 firms from around the world participated, contains quite a bit of great news for freelancers — otherwise known as nonemployer businesses.

When asked whether hiring freelancers online gives them a competitive advantage, 85% agreed that it did. Of them, 53% noted that online hiring reduces hiring costs for them, while other advantages included faster time-to-hire and access to a broader talent pool.

Perhaps the best news from this survey for the contingent workforce is that contract work appears to be here to stay. Evidently, the best thing about a virtual contract workforce from the business point of view is that it gives the business access to a talent pool that is as good as or better than (69%) what is available to them locally.

Between that and the fact that firms are not usually required to provide the same benefits to those contractors as they would be for permanent employees, it is easy to see why 73% of survey resopndents say they will have hired more freelancers in 2012 than they did in 2011. Of them, 27% have on-site freelancers and the remaining 73% use online contractors.

Businesses surveyed also noted that they anticipate having lots of work for programmers and developers (70% of respondents), graphic designers (61% of respondents), writers (38% of respondents), marketers (32% of respondents), and mobile app developers (28% of respondents) over the next six months. Looking further down the road, 57% of resopndents anticipate that more than 50% of their workforce will consist of online freelancers within the next five years.

Of course, this survey has some significant limitations. Elance did not indicate where its pool of respondents came from but, if it was culled from among their own clients, then the survey qualifies as a Kool Aid sales pitch from those who have already drunk it. It would be interesting to see the results of a similar survey conducted among a more random assortment of business owners and/or human resources managers.

That said, these survey results do make sense in the light of increases in nonemployer numbers in both 2009 and 2010, in spite of the limping economy — or perhaps because of it. For many firms of many sizes, lean is the name of the game in the information economy and contract workers can be experienced and highly skilled and extremely cost effective. For cash-strapped small businesses and cost-cutting larger ones, it doesn’t get much better than that.

In the meantime, however, the implications for the American workforce are worth pondering. I am not aware of anyone who is looking at these numbers right now but it appears that nonemployers, examined as a segment of the workforce, are somewhere between 25% and 33% of American workers.

That is a trend that is not likely to reverse itself anytime soon and it is a trend that needs the attention of economists and policy makers, as well as the business community.

Crowd Photo via Shutterstock

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Nonemployer businesses, to jog your memory, are defined as firms with no paid employees other than the business owner or owners. Population gyrations in the nonemployer universe are worth watching because these tiny firms often serve as economic “canaries in the coal mine.”

In addition, some economists view the surge in nonemployer numbers that has occurred since the turn of the century as an intriguing labor market trend.

The nonemployer update release date was originally slated for July but the Bureau discovered a problem with the 2009 data that had to be corrected, necessitating a re-release of the 2009 data and pushing back the 2010 release.

What Was The Problem?

Apparently, the folks who were supplying the data for these calculations underreported the numbers by a pretty significant amount, particularly in the real estate and mining sectors.

I’m just going to plow through this. Try not to let your eyes cross.

The resulting corrections show, in terms of the big picture, that nonemployer numbers actually grew (instead of declining) from 2008 to 2009. There were 21.7 million nonemployers in 2009 – 382,504 more than there were in 2008 rather than 222,563 fewer. That translates into an increase of 1.8% rather than a decline of 1%.

Receipts were still down in 2009 but not by anywhere near as much as originally reported. Overall nonemployer receipts in 2009 fell by 0.8% to $923 billion instead of falling by the far more drastic 9.9% to $838 billion.

Similarly, average annual receipts dropped from $43,646 in 2008 to $42,544 in 2009, meaning that the average nonemployer business took a 2.5% cut in earnings. Not the sort of thing to make any business owner happen but much better than the 9% hit calculated from the original data.

If You’re Keeping Track

This means a few changes to the overall business population numbers for 2009, too. Total U.S. firms in 2009 numbered 27.2 million, and nonemployers accounted for 79.6% of them, rather than 26.9 million firms with 78.5% of them being nonemployers. Microbusinesses with fewer than 5 employees made up 92.7% of all U.S. firms and non-micro small businesses (5 to 499 employees) comprised 8% of the business population.

Having corrected the 2009 numbers, Census and its data providers took good care to make sure that something similar didn’t happen with the 2010 data.

The nonemployer population experienced another increase in 2010, up by 1.9% to 22.1 million strong. Total receipts for the nation’s nonemployer businesses that year grew to $951 billion, up an encouraging 3%, while the average nonemployer business owner got a $459 raise (a 1% increase) from $42,544 to $43,003 in average annual receipts.

Unfortunately, it wasn’t all good news.  Nonemployer numbers declined in utilities, construction, retail, finance and real estate. Construction, utilities and finance also saw earnings declines for the year.

For All Other Sectors, The News Was Better

The five largest increases in population occurred in other services (6.6%), accommodation and food services (4.7%), mining (4.3%), administrative, support, waste management and remedial services (3.9%), while health care and social assistance tied with forestry, fishing & hunting and agricultural support services for fifth place (3.5%).

The forestry/ag sector and the mining sector also saw pretty spectular spikes in earnings between 2009 and 2010, with 12% and 13% increases in overall receipts, respectively. Receipts in transportation and warehousing also experienced a double-digit increase, at 11.5%.

The 80/20 rule still applies to microbusinesses. About eight out of ten of them earn less than $50,000 in average annual receipts, while the remaining 20% make more than $50,000. Among the lower earning firms, almost 25% make less than $5,000 annually and are probably scorned as hobbyists by many economists and policy makers.

At the other end of the spectrum, almost 1% of nonemployers earn an average of half a million per year or more and, among them, one in ten earns in excess of $1 million per year.

The Bottom Line

Nonemployer firms were recovering in advance of the rest of the economy in 2009 and 2010. While employer firms were still declining in number, those sturdy nonemployers were fighting their way back.

In fact, it is quite possible that some of the increase in nonemployer population in 2009 was a result of smaller employer firms dropping back to nonemployer status as tough times forced them to let their employees go in order to stay afloat.

It will be interesting to see whether the rest of the 2010 firm size class data reflects a recovering economy and, further, whether economic reverses in 2011 and 2012 will cause these data to grow unusually volatile over the next few years.

Census Photo via Shutterstock

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And both ends of Pennsylvania Avenue are never more useless than when they are contemplating small business policy.

An Example

So President Obama has been fighting with the Republican-controlled House this summer over whether or not to extend the Bush era tax cuts for an unspecified amount of time — longer or shorter, depending on who you talk to.

President Obama wanted to extend those cuts but only for the “middle class,” or those households earning less than $250,000 in adjusted gross income. The upper income taxpayers excluded from the extention the President contemplates represent the top 10% income bracket.

You would think that House Republicans would leap at the chance to keep any expiring tax cuts in place, wouldn’t you?

After all, if you show yourself willing to work with your political opponents, there is always the possibility that your good faith negotiation will get you more of what you wanted further down the road.

During more reasonable times – say about two decades ago – members of Congress were statesmen enough to be willing to take half of what they wanted rather than walk away empty-handed. That kind of give-and-take also opened the opportunity for further amendments and other legislative tweaks that could get you evenmore of what you were pushing for in the first place.

That Was A Long Time Ago

Yes, boys and girls, once upon a time, our nation’s leaders were more interested in addressing the country’s problems than they were in raw partisan political power.  Or, to be more accurate, they were smart enough to understand that those two things were not mutually exclusive.

Predictably, House Republicans voted down what President Obama was billing as a middle class and small business tax cut last month, because said tax cut would exclude those top earning small business owners … and everybody else.

According to House Small Business Committee Chairman Sam Graves (R-MO) “President Obama’s proposed tax hike on 900,000 small businesses” would cost jobs, while the limbo in which President Bush’s taxes might expire (but we’re not really sure if that’ll happen yet) produces levels of uncertainty that cause small business owners to be unable to function.

Of course, the 900,000 small businesses to which the Chairman refers are actually 900,000 small business owners – or, to be still more accurate, 900,000 taxpayers who report any “small business” income at all on their tax returns.

Some of these small business owners, you may recall from the debates in 2003, include former President George W. Bush, former Vice President Dick Cheney and former Secretary of State Condoleeza Rice. And, of course, the vast majority of the folks that those House members are fighting for have nothing at all to do with small businesses.

Besides all of which, even if we permit Chairman Graves to get away with his “900,000 small businesses,” we’re still only talking about roughly 3.5% of all the nation’s small businesses. Not exactly a move that is likely to completely crush the world’s second largest economy.

Meanwhile

President Obama had another attack of his “We Can’t Wait”-policymaking-without-consulting-the-nation’s-legislature, and announced a slate of small business initiatives that mostly don’t require Congressional approval. By and large, they consist of a passel of tax cuts and loan programs, none of which meet the needs of the vast majority of small businesses.

While most microbusiness owners like the idea of paying less in taxes, many more of them would prefer tax simplification and other forms of regulatory relief. Nobody ever seems to talk about that when they talk about small businesses. But, then again, that’s not really the point of any of these exercises.

The point of all these exercises is to give all parties involved something to complain about on the campaign trail.

President Obama gets to propose so-called small business friendly legislation that isn’t going to be approved by the House (because the House isn’t going to approve anything that’ll give the President any sort of legislative victory) and then complain that Congressional Republicans aren’t doing enough to help small businesses.

House Republicans simultaneously get to move legislation that they know perfectly well is going nowhere because (they know perfectly well) President Obama is not going to sign it (always assuming they could get it past the Senate, which is unlikely) and then they can complain that President Obama isn’t doing enough to help small businesses.

The Best Part Of This Silly Game

Neither side in this kind of mud slinging match has proposed anything that would actually help the majority of small businesses anyway.

You see, that’s the nature of political campaign season. If you want to play spectator, a sense of humor helps to avoid high blood pressure and other symptoms of excessive stress.

Otherwise, you could end up with an ulcer just from listening to all that sound and fury that signifies nothing.

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From: Dr. Dawn R. Rivers, Director, Malone Macroeconomic Policy Institute

Subject: Evaluation of Policy Response to Economic Contraction of 2008-2009

Date: May 18, 2012

Beginning in the fall of 2008, the U.S. economy experienced the worst contraction since 1929. In the six-month period from September 2008 through March 2009, the Bush and Obama Administrations and the Federal Reserve pursued a variety of policy responses, including the Troubled Asset Relief Program (TARP), the American Recovery and Reinvestment Act of 2009 (ARRA), as well as the various actions of the Federal Reserve over that period.

From 2007 to 2008, gross domestic product (GDP) grew at an annual rate of 1.8%, reflecting the slowing that prompted the National Bureau of Economic Research to declare the beginning of the recession as of December 2007. Ultimately, from peak to trough, the economy contracted by 2.8%, from $14.3 trillion to $13.9 trillion. It has since recovered; GDP for 2011 was 15.1 trillion, up by a seemingly robust 3.8% over 2010 growth.

TARP and the activities of the Federal Reserve prevented the international and domestic capital markets from completely collapsing but neither has been able to restore sufficient confidence to secure a reasonable loosening of credit markets, leaving creditworthy consumers and small business owners without access to capital. Large corporations are able to borrow but they are hoarding cash, which does nothing to increase output.

The ARRA was crafted to inject $800 billion into the economy, with $500 in direct government spending and $300 in tax expenditures. Multiplier effects should have transformed those investments into $3.7 trillion in additional output, accompanied by robust and ongoing GDP growth and reductions in the unemployment rate.

Yet, the economic recovery that began in 2010 seems fragile and tentative. The housing market remains weak, the unemployment rate is still well above 5% total employment, and volatile energy costs place upward pressure on prices, sparking worries about inflation. If the policy responses of 2008-2009 had been uniformly effective, obviously these indicators would be much more positive.

Unfortunately, the current recovery is largely built on a house of cards. The resumption of GDP growth is largely driven by surprisingly robust personal consumption expenditures and a consumer spending level of 71% of GDP is neither healthy nor sustainable. The only component of GDP that has not returned to its pre-recession level (or exceeded it) is gross private sector investment.

In fact, annual private sector investment levels began falling from 2006 to 2007, well before the 2008 contraction, suggesting some structural weakness in place long before the events of September 2008. Gross domestic private investment fell by one-third (33.5%) from peak to trough (2006 to 2008) and has only recovered 82.3% of its 2006 levels as of 2011. In raw dollars, that translates into approximately $400 billion in missing investment. Taking multiplier effects into account, the result is roughly $2 trillion in potential output that has been lost to our economy.

To address these issues, it is our recommendation that the Obama Administration and the Federal Reserve take steps to encourage both confidence and optimism, particularly among the business community. A modest increase or two in the discount rate, for example, could persuade corporations to stop sitting on their cash if it conveys the message that the economy may be heating up and that the cost of money is about to increase.

Such an increase in interest rates could also be expected to have a positive impact on lending, since it would improve profit margins for banks. Tax expenditures that reward investment have been of questionable value to date — and should be the subject of much-needed research — but credits such as the Research & Development credit should not be allowed to expire.

Finally, we note that the Obama Administration has made its largest private sector investments in multi-billion dollar corporations, to little effect. In addition, a targeted small business fiscal policy that focuses on lending makes little objective sense in a climate in which 92% of small business owners report that their credit needs are being met or they are not interested in borrowing.

Given the lack of results from these investments, it would behoove the Administration to discuss changing tactics in order to stabilize the recovery and increase GDP growth.

According to the National Federation of Independent Business (NFIB), small business optimism is climbing but remains at recessionary levels. Yet growing numbers of small business owners also report improvements in earning trends and increased plans for making capital expenditures.

Bearing in mind that the data over the last 15 years confirms that companies are trending smaller and that recent research by the Ewing Marion Kauffman Foundation has found that the primary source of job growth is young or new small firms, I recommend the Administration encourage new firm formation by minimizing burdensome regulations, devise ways to assist nonemployer firms in making the transition to employers, encourage investment in small businesses (the crowdfunding provision in the recently enacted JOBS Act was a good start), fully fund all business management training and technical assistance programs currently offered by the U.S. Small Business Administration, and make direct investments in small businesses wherever possible.

Additionally, I recommend that the Administration convene another White House Conference on Small Business and that the suggestions and recommendations of real small business owners be implemented wherever politically feasible.

Thank you for the opportunity to offer this analysis, Mr. President. If you have further questions or require clarification of any of the points herein, please do not hesitate to contact me.

DISCLOSURE: Of course, I don’t have a doctorate yet and I don’t work for a non-existent think tank named after my macroeconomics professor. This exercise was an assignment from a course I took last semester, but I thought the ideas were worth sharing here.

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President Obama issued a proclamation declaring National Small Business Week to take place May 20-26, 2012. Both the House and the Senate passed resolutions acknowledging the occasion and declaring their undying love of small businesses … like they always do. And the Small Business Administration held its own shindig, during which it crowned its Small Business of the Year … like they always do.

For the record, the Small Business of the Year honoree has never been a microbusiness, in spite of the fact that nine out of ten U.S. firms has fewer than five employees.

Make of that what you will.

Meanwhile, while President Obama and Congressional Democrats and Congressional Republicans were all bragging about all the great stuff they’ve been doing or trying to do for small businesses — none of which is likely to be of much use to microbusinesses — the Government Accountability Office (GAO) released a report that is something of a case in point.

The Obama Administration is particularly proud of the small business friendly provisions in the Patient Care and Affordability Act. For example, there is a tax credit available for small employers that pay at least half their low-wage employees’ health insurance premiums (“low-wage” here means earning $11.50 an hour or less).

The idea behind the tax credit is to create an incentive for those small employers to start offering health insurance to their workers, something only 17% of them were doing as of 2009, and to make the premiums more affordable for said small employers.

Senate Small Business Committee Ranking Member Olympia Snowe (R-ME) and House Small Business Committee Chairman Sam Graves (R-MO) were wondering how that tax credit was working out, so they asked the GAO to look into it. The GAO has found that the tax credit might be working out a lot better if small businesses were actually using it.

It turns out that only 170,300 small employers from a pool estimated at between 1.4 million and 4 million eligible firms claimed the tax credit. The cost of the credit, pegged by the Congressional Budget Office at $2 billion in fiscal 2010, was only $480 million.

So, what happened?

It’s very simple and fairly typical of what happens whenever Congress does something to the tax code as a favor to small businesses. The GAO report confirmed that the tax credit is so complicated to figure out that small business owners don’t want to take the time to figure it out. That includes figuring out which of their employees qualifies to be counted as an FTE (full time equivalent) worker, whether they qualified in terms of wages, and which employees could be used for a partial credit or full credit.

This is not the only tax benefit that microbusiness owners don’t use because of the issue of tax complexity. It is estimated that only about one-third of eligible firms use the Business Use of the Home deduction, and only about 9% of qualifying small businesses use the Section 179 business expensing deduction. Complicated rules, computational complexities and a general sense that the tax benefit isn’t worth the hassle is what keeps may microbusinesses from taking full advantage of the tax code.

In addition, and this is also confirmed by the GAO report, it is difficult to incentivize the spending of money that small employers, and especially microbusiness employers, simply don’t have. Before you can qualify for the credit, you have to spend the money. Before you spend the money, you have to have the money.

I never thought this was a difficult concept but they have never seemed to “get” this one in Washington, from what I can see.

As a general matter, microbusiness employers care about their employees. They also know that they are competing for workers with larger companies that have more resources and can offer better benefits. Microbusiness employers would offer health insurance benefits to their employees, without government incentives, if they could afford it.

The fact that most of them don’t is not an indication of negligence or poor personnel management or miserly inclinations on the part of small business owners. It is simply an indication of the fact that their cash flow does not allow them to offer those benefits and a tax benefit that they won’t realize for a year isn’t going to make that money magically materialize in their company bank accounts.

Interestingly, neither Chairman Graves nor Ranking Member Snowe have released statements in response to the GAO’s findings, which were released in mid-May. It is possible that the report did not tell them what they wanted to hear or was otherwise insufficiently damning of President Obama’s health care reform initiative.

However that may be, this much is clear:  whatever the President and Congress intended by way of a small business friendly health care reform law, what they wound up with is every bit as useless for microbusinesses as most of the other small business policy that emerges from Capitol Hill.

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Long time readers know that I’ve been saying since forever that small business policy that misses most of the small businesses in the country shouldn’t be called small business policy. I’m sure there’s something else we could call it that would be catchier or sexier, and would have the advantage of being accurate.

So, as we swing into election season, House Republicans have passed H.R. 9, enticingly entitled the Small Business Tax Cut Act, with much jumping and yelling. In some ways, this is a decisive response to the kinds of criticisms that have been coming from House minority leadership for months. House Majority Leader Nancy Pelosi (CA-D) and Democratic Whip Steny Hoyer (MD-D) have been very noisy in their complaints that the Republicans had been ignoring the economy and only cared about their well-heeled corporate friends.

Perhaps not in direct response to these accusation (at least, not anything anybody is inclined to acknowledge publicly) but in a suspiciously timely fashion, this tax cut has emerged from the moth balls in the House.  House Small Business Committee Chairman Sam Graves (R-MO), said in a statement when the House passed the measure:

“The Small Business Tax Deduction Act would provide tax relief for millions of small businesses, from mom and pop stores to small manufacturing and service companies, allowing them to invest and hire workers.  This is just the type of a jobs legislation that Washington should focus on, and I encourage the Senate to take up this bill.”

The Obama Administration’s Office of Management and Budget maintains that about half of the bill’s benefits would go to individuals with more than $1 million in annual income and to large corporations, because the legislation uses an excessively broad definition of a small business.

If you’re starting to feel a sense of deja vu, nobody can blame you. This is precisely the same debate that took place back in 2003, when President Bush’s second tax cut was being debated. He claimed cuts for the top tax bracket would benefit small businesses. A lot of other people said that was hogwash. Being blessed with a Republican Congress, Business got his tax cuts.

Nothing has changed since then. Nonemployers still comprise almost 80% of all small businesses and they still are only earning, on average, something like $45,000 per year. Most small businesses are microbusinesses are relatively low-earning outfits.

And, parenthetically, I wonder why these so-called small business tax cuts never confine the taxpayers that can use then to those that can prove themselves to actually be small businesses?

Now that it has passed the House, the bill has been referred to the Senate Finance Committee where, knowing Chairman Max Baucus (MT-D), there is likely to be some kind of action on the bill. Even so, it would be surprising if Senator Majority Leader Harry Reid were to let this bill see the light of day.

And provided the bill gets through all those potential roadblocks, President Obama is expected to veto it.

Everybody knew that when the House voted to pass this legislation along largely partisan lines. But the move will give endangered Republicans the ammunition to be able to tell the folks in their Districts that President Obama is anti-small business.

That was the real point of this exercise.

Question Photo via Shutterstock

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The JOBS Act essentially loosens or simply removes a slew of securities regulations that were perceived as getting in the way of new investment in “emerging growth companies.” So, as long as those companies are raising less than $1 million, they will find themselves facing far fewer paperwork and other regulatory hoops to jump through once this bill takes effect.

Definitions of “small business” are always interesting but here’s a factoid for you when you hear people praising this bill as a bit of targeted small business legislation: you are an emerging growth company if your gross revenues are under $1 billion in their most recently completed fiscal year.

Somehow, people in Washington always make it sound like earning $1 billion in gross revenues is a simple thing. Anybody can do it, right?

This was beginning to look like yet another instance of microbusinesses coming away from another foray into small business policy empty-handed until Senator Jeff Merkley (D-OR) introduced his crowdfunding amendment into the mix. The amendment was co-sponsored by fellow Democrats Michael Bennet (CO) and Senate Small Business Committee Chairwoman Mary Landrieu (LA) — and, to get that bi-partisan label in there, Republican Scott Brown (MA).

What the amendment does is to provide an exemption for crowdfunding through web sites like Kickstarter, WeFunder and the U.K.’s CrowdCube.

The legislation also provides that the amount that any individual is permitted to invest is reasonably small, so that nobody gets cleaned out by any of these investments. The intermediaries have to register with the Securities and Exchange Commission, and there will be some paperwork requirements of the small businesses, too. No administrative free rides here but, compared with the degree to which buisness owners are required to twist themselves into pretzels for even a small private offering, crowdfunding looks to be much closer to painless.

Of course, even with the bill sitting on the President’s desk, the debate rages on. We just emerged from a financial meltdown caused by deregulation and now we’re deregulating again? I guess this is where we get to wait for the sky to collapse again. First, it was the Savings & Loan fiasco in the 1980s and then the housing market bubble that led to the Great Recession, and now this.

More deregulation will promote fraud! People will lose money! The government must do a better job of protecting the public from its own stupidity!  (Well, no, nobody actually said that but that is what they meant.)

Here’s The Problem

The biggest hit taken in the economy as a result of the so-called Great Recession was in overall levels of investment. Consumer spending is back up to more than 70% of GDP, government spending is up a little (much less than you’d think to listen to the budget hawks in Congress) and the trade deficit is more or less back to normal. But investment fell by a whopping 25% and it is only not almost-but-not-quite back to its pre-recession levels.

At the same time, thanks to its multiplier effects, it’s investment that will make this long, slow, painful recovery much shorter, much faster and much less painful. The JOBS Act, including this crowdfunding amendment, is Congress’ way of pumping some backbone back into timid, not to say still-terrified, investors.

It’s the crowdfunding piece that could conceivably help microbusinesses overcome their perpetual problem of lack of access to capital.

On the other hand, if the real-life application of the crowdfunding provision turns out to be too paperwork-heavy, microbusiness owners won’t use it.

A lot will depend on what sorts of rules the SEC writes to help it implement the JOBS Act. Stay tuned.

Jobs Act Photo via Shutterstock

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