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Stimulus Bill Falls Short

Apr 1, 2009

The government's economic stimulus plan doesn't include many provisions that directly benefit small businesses, according to economists. However, some agree that the consumers it helps may aid small businesses.

"There's not a lot in the stimulus plan that will put cash in the hands of people who will deliver it to the front door in the form of sales," said William Dunkelberg, chief economist with the National Federation of Independent Business (NFIB), a small business advocacy group based in Washington, DC.

Raymond Keating, chief economist with the Small Business & Entrepreneurship Council, is also dubious about how much help the plan will give the nation's small companies. "I think we clearly need a different type of package," said Keating. His group is also based in DC. "We need incentives in the private sector for people to take risks and expand business. Unfortunately, there's very little of that in this package."

The package continues the expanded Section 179 deduction, which was nearly doubled in 2008 to $250,000 from $125,000. The deduction allows small businesses to deduct upfront the entire cost of equipment such as computers, furniture, vehicles and manufacturing machinery. The bill also extends bonus depreciation, which gives businesses of all sizes a more substantial first year deduction than traditional depreciation rules have allowed. But companies across the country have been cutting back their capital spending, unwilling to make big commitments or unable to get financing. That means the tax deductions aren't likely to help as many companies as the government had hoped.

Economists have suggested that the natural return of consumer and business spending, as the economic cycle continues, is more likely to help small companies. "The best thing to happen to small business is if customers come in," Dunkelberg said. He said a big current economic problem is that, "the guy whose job is not at risk has been scared into not spending." When those consumers and businesses release pent up demand, the recession's grip on the country may ease, he suggested.

Keating expects businesses to be the catalyst. "Consumers are followers; as long as business is investing, expanding and creating jobs, consumers are quite happy and are going to keep spending," he said. But economists said the recovery is likely to be uneven, with some industries or companies within industries ahead of the pack, while others lag. "I think it's going to be a very much case by case situation," Keating said. "Companies that come up with the innovations that get consumers excited, or the cost savings that get consumers in the door, are going to benefit."

Meanwhile, small business advocates plan to keep lobbying for legislation they believe will provide a bigger boost for the economy. Bill Rys, tax counsel for the NFIB, said his organization wants to see the government extend the Section 179 and bonus depreciation provisions into 2010, and for that decision to be made this year. "We're not going to see a recovery in the immediate term," Rys said. "The incentive to spend is not going to be there until the end of the year, and you may want to wait till next year before you spend."

The NFIB also would like to see the Section 179 deduction expanded to include equipment that currently doesn't qualify for the tax benefit, such as heating and ventilation systems and also building construction. That change, Rys said, would benefit the construction industry, as well as small businesses. The organization also wants to see the tax deduction for a new company's start up costs to be doubled to $10,000 from its current $5,000. Rys noted that many people being laid off will be starting their own companies and could use a bigger break on their taxes.

The NFIB has also been campaigning for the government to suspend payroll taxes, which are employees' and employers' contributions to the Social Security system, for six months. That, NFIB has said, would put more money into consumers' hands, and make them feel more comfortable about spending.

The National Retail Federation (NRF) also believes the bill doesn't go far enough to boost consumer spending and bring shoppers back into stores. NRF welcomed the legislation's, "Making Work Pay," tax credit, a Home Ownership Tax Credit for home buyers and other initiatives aimed at low and middle income families, saying they would make a contribution to the economy, because those taxpayers are most likely to spend the extra cash.

"While these and other individual tax provisions will provide stimulus, this massive measure still fails to provide the direct and targeted tax relief needed to stimulate consumer spending," said Steve Pfister, NRF's SVP for government relations. "With consumer spending representing two thirds of GDP and consumer confidence at the lowest level since records have been kept, it is difficult if not impossible to foresee an improvement to overall economic growth until consumers regain confidence and resume spending."

"We continue to believe the best mechanism to accomplish this goal would be a series of national sales tax holidays," Pfister said. "The increased sales resulting from these holidays would provide a direct infusion of liquidity into the economy estimated at $20 billion, benefiting consumers and cash starved states, and would preserve and create significant numbers of jobs through interrelated sectors of the economy, including the retail, manufacturing and transportation industries."

Pfister said NRF supports a provision of the legislation that would allow businesses to offset current losses against previous profits from as long as five years ago rather than the current two years. The change in "carry back" rules would give companies $15 to $20 billion in badly needed cash, about a quarter of which would go to retailers struggling to keep stores open and employees on the payroll.

But NRF opposes a provision that would allow laid off workers who are 55 or older, or who have worked at a company for 10 years or more, to continue their health insurance coverage under COBRA until they find another job or qualify for Medicare. NRF cited a study showing that the provision would cost employers between $39 and $65 billion over 10 years, on top of the already crushing cost of employee health insurance, and said the issue should be dealt with as part of healthcare reform, rather than economic stimulus.

Topic: Wholesale News

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