What Small Business Really Needs: A Helping Hand, Not A Tax Cut
Entrepreneurs aren’t being discouraged by high taxes. They’re struggling with a lack of support and resources needed to put their ideas into action.
During the 2008 presidential campaign, an Ohio man named Samuel Joseph Wurzelbacher confronted then-candidate Barack Obama about the Democrat’s plan to raise taxes on individuals in high-income brackets. Wurzelbacher, who became known as Joe the Plumber, asserted the plan would hurt small business owners like him.
At the time, it seemed as though Joe the Plumber gave a voice to the small business owner population, tired as they were of high taxes and strict regulations. But two things proved wrong with this picture: Joe the Plumber, it turns out, is not a plumber at all, he’s merely worked for one. Also, he is woefully ill equipped to speak on behalf of small business owners.
The trope Wurzelbacher trotted out — that small business owners just want the government to reduce their taxes and get out of the way — is one we often hear coming from the mouths of conservative politicians and the press releases of right-leaning groups like the United States Chamber of Commerce.
While this stance may reflect the views of some entrepreneurs, it glosses over a reality that is becoming increasingly clear: many small business owners, most likely the majority of them, could benefit from policies that make it easier for them to do business. Small business owners need affordable healthcare, good infrastructure, and access to capital. Millions need more humane immigration laws.
I have seen this first-hand from having worked with hundreds of business owners; I’m the co-founder of the Intersect Fund, a New Jersey non-profit that provides training and loans to emerging entrepreneurs. I rarely hear my clients complain about taxes (as start-up owners, many earn low incomes). What I do notice, though, is that high health care costs hurt new businesses, and immigration related hurdles keep many from starting firms that could otherwise pay taxes and create jobs.
In addition, my clients struggle to find affordable capital with which to start or grow their businesses. Part of the reason the Intersect Fund exists is that big banks are uninterested in disbursing business loans of less than $25,000, and they balk at applicants with less-than-perfect credit.
We cater to clients at the “very small” end of the small business spectrum. The industry term for such a firm is “microbusiness,” which we define as a business with five or fewer employees that needs $35,000 or less to get off the ground. The Association for Enterprise Opportunity estimates approximately 24 million of these firms operate throughout the country. If one third of them added one job each, the U.S. would enjoy full employment.
Unfortunately, these businesses face some serious obstacles. An Aspen Institute study found approximately 10 million of them lack access to basic resources, such as technical assistance or business loans.
And the resources that do exist are distributed unequally: a 2003 Dartmouth study by David Blanchflower found African American business owners are twice as likely as their white counterparts to be denied a business loan, even when controlling for factors such as creditworthiness. The perception (often correct) that capital is unavailable, the study found, makes black business owners more reluctant than others to seek out capital.
Government efforts like the Community Reinvestment Act mitigate the effects of discrimination, and agencies like the Community Development Financial Institutions Fund, part of the Treasury Department, offer much needed aid to organizations that lend to underserved populations.
The effects of the Affordable Care Act remain to be seen, but the provision enabling individuals under 26 to sign on to their parents’ insurance plans has already removed a significant barrier to entrepreneurship for more than a million young adults.
Millions of entrepreneurs — especially those of modest means and those whom the financial services industry has historically ignored — benefit every day from policies that seek to expand access to entrepreneurial opportunity. Instead of taking the hands-off approach that Joe the Plumber and his ilk promote, the federal government and states should re-think what “pro-business” means. They should play an active role in promoting small business development.
At a time when small businesses are so important, I believe voters deserve a clear picture of which policies help them and which hurt them. To this end, I’ll be working in the coming months with entrepreneurs, industry organizations, and trade groups to develop a scorecard with which to assess a candidate’s or party’s stance on issues that affect entrepreneurs.
To be clear, Joe the Non-Profit Microlender (me) is no better qualified than Joe the Plumber to speak on behalf all small business owners. My observations represent neither entrepreneurs at large, the views of my clients, nor the positions of my organization. But I would propose a couple of things: first, an entrepreneur’s potential should hinge on her talent and drive, not on her race, gender, origin, or income bracket. Second, a business climate that tolerates inequality ends up quashing potential that our economy — especially now — can scarcely afford to waste. Policies that ensure equality would spur far more growth than a tax cut ever could.
Joe Shure is a Roosevelt Institute | Pipeline Fellow and co-founder and associate director of the Intersect Fund.
Cross-Posted From The Roosevelt Institute’s New Deal 2.0 Blog
The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.