Small Business On The Ropes

Here’s a little blurb from the NFIB that puts some perspective on the most recent employment report from the BLS:

“Although the economy officially peaked in December 2007, small business owners were already shedding workers, reducing employment by an average of negative 0.04 employees per firm in 2007. In 2008, this rose to an average reduction of negative 0.20 workers per firm, then to negative 0.80 workers per firm in 2009, the largest reductions recorded in the NFIB surveys (started 1973).  2010 has not been a whole lot better, with employment change at or below 0 in every month including August, when firms reported employment change of negative 0.30 workers per firm.  Bottom line, job creation is not happening. The only source of new jobs in the private sector (excluding education and health care, sectors dominated by government) is new firms and maybe services.

“In August, most firms did not change employment, but for those that did, 11 percent (up one point from July) increased average employment by 2.3 employees, but 13 percent (down two points) reduced their workforces by an average of 3.5 workers.  Job creation still has not crossed the 0 line in the small business sector.

“The number of owners with unfilled (hard to fill) openings rose a point to 11 percent of all firms, still historically a weak showing.  This is a major predictor of the unemployment rate, suggesting little change in the current rate.

“Over the next three months, 13 percent plan to reduce employment (up three points), and 8 percent plan to create new jobs (down one point), yielding a seasonally adjusted net 1 percent of owners planning to create new jobs, a point worse than July, but at least it’s positive.

“Overall, the job creation picture is still bleak. Weak sales and uncertainty about the future continue to hold back any commitments to growth, hiring or capital spending. Consumer and business-owner sentiment is in the dumpster, and until this changes, small businesses will remain unwilling to spend or hire.”

If and when we do truly start to climb out of the pit, it will be small business that will put people back to work. This report makes it crystal clear that we are some distance away from that happening.

Now you would think that given this state of affairs politicians would be loathe to do anything to make matters worse. To suggest policies that might make business owners think twice about expanding and hiring. You would be wrong.

Via Greg Mankiw:

From Kevin Hassett and Alan Viard:

Recently, for example, Vice President Joe Biden harshly rejected House Minority Leader John Boehner’s assertion that the hikes would harm small businesses, saying that “he has created this myth that a tax cut for millionaires is actually a tax cut for small business. There aren’t 3% of small businesses in America that would qualify for that tax cut.”…

In fact, the sound bite about 3% of small businesses, which has been picked up by numerous pundits, is one of the more misleading statements in the long history of economic propaganda.The 3% figure, which is computed from IRS data, is based on simply counting the number of returns with any pass-through business income. So, if somebody makes a little money selling products on eBay and reports that income on Schedule C of their tax return, they are counted as a small business. The fact that there are millions of people in the lower tax brackets with small amounts of business income may be interesting for some purposes, but it is irrelevant for the assessment of the economic impact of the tax hikes.The numbers are clear. According to IRS data, fully 48% of the net income of sole proprietorships, partnerships, and S corporations reported on tax returns went to households with incomes above $200,000 in 2007. That’s the number to look at, not the 3%. Would Mrs. Pelosi and Mr. Biden deny that the more successful firms owned by individuals in the top income-tax bracket are disproportionately responsible for investment and job creation?

I understand that politics is politics and this is an election year, a critical one,  but at some point in time these guys are going to have to put aside their ideologies and base pleasing strategies and get down to the work of putting things back on a growth track.

It isn’t just about taxes. It’s regulation, health care and a general tone that this administration sets that is decidedly anti-business. To expect a business owner to step up and take the risks that go with expansion and hiring you need some sense, some confidence that when you do so you won’t be faced with some mandate or impost out of left field that wipes out your marginal increase in profitability.

Do you think that’s what business people see when they assess the playing field?

Update: I ran across this from Ezra Klein. It’s a good illustration of the endless pot of money that Progressives imagine business to be as well as the type of policy that ensures slow job growth.

Which goes to the reality of the situation, which is not that workers and employers “flexibly choose an arrangement that works for them.” Employer-employee relations are rarely so idyllic. Broadly speaking, employees with the power to demand more paid vacation do so, and employees without the power to demand more paid vacation get less — or in some cases, no — paid vacation. A law guaranteeing paid vacation would primarily tilt the playing field toward low-income workers, rather than against them, as is the case now.

Emphasis Mine)

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