How Washington Punishes Small Business

original_signMembers of Congress like to say nice things about small businesses in this country, but the track record shows it routinely favors big corporations instead, according to a May 7 opinion piece published in the Wall Street Journal.

The article was written by Stacy Mitchell of the Institute of Local Self Reliance, with the NBDA’s Fred Clements listed as co-author. Both are involved in Advocates for Independent Business, an umbrella group of 15 associations representing independent businesses, including bike shops, book stores, toy stores, running stores, florists, hardware stores and others.

“Members of Congress love to evoke the diner and dry cleaner, the neighborhood grocer and local hardware store,” the article says. “Ensuring the well-being of Main Street, we might easily assume, is one of their central policy aims. The legislative track record tells another story.”

The article notes that since the late 1990s, the overall market share of firms with fewer than 100 employees has fallen from 33% to 28%, according to U.S. Census data. There are nearly 80,000 fewer small retailers today than in 1999.

Starting a new business also appears to have become harder. The number of startups created annually fell by about 20% between the 1970s and the 2000s, Census data show.

“Dismissing these trends as merely the product of market forces misses the powerful way that government policy has tilted the playing field,” the article continues.

“A report last month by the research organization Good Jobs First, for example, found that two-thirds of the $68 billion in business grants and special tax credits awarded by the federal government over the past 15 years went to big corporations.

“State and local economic development incentives are similarly skewed. While the members of our business associations—mostly independent retailers—must finance their own growth, one of their biggest competitors, Amazon, has received $330 million in tax breaks and other subsidies to fund its new warehouses. Indiana, for example, gave the company a $5 million tax credit to open a distribution center in 2009.”

The piece also notes that multinational companies also benefit from a host of tax loopholes.

“A local pharmacy or bike shop cannot stash profits in a Bermuda shell company or undertake a foreign ‘inversion.’ The result is that small businesses pay an effective federal tax rate that is several points higher on average than that paid by big companies, according to a Small Business Administration study from 2009,” the article continues.

The authors point out that these cost differences have a real impact on the ability of small businesses to survive at a time when price competition is fierce and margins razor thin. Yet efforts to reform corporate subsidies and close tax loopholes have gone nowhere.

Consolidation in the banking system is another problem for small business, with 500 local community banks closing since 2008 and Congress doing little to support them. This has also had a big impact on other small businesses, with many reporting continuing difficulty in obtaining loans for business expansion.

“Even the Small Business Administration doesn’t seem to have the backs of small businesses these days,” the article continues. “The agency has steadily expanded its definition of ‘small’ in a way that has shifted its support away from the businesses that are truly small. While the agency’s overall loan portfolio has grown, the number of small-dollar business loans backed by the agency—those under $150,000—fell by two-thirds between 2005 and 2013, from 74,000 loans to just 25,000.

“During this time the SBA guaranteed thousands of loans to low-wage fast-food franchises, often with high failure rates. Over the last decade, the agency backed loans to 1,969 Quiznos sandwich outlets, 787 Cold Stone Creamery stores, and 129 Blimpie sub shops. Altogether more than 40% of these outlets failed. The only winners in these deals were the big franchise parent companies, which earned fees from each of these new outlets without incurring any risk or liability when the franchisees failed and defaulted on their loans.”

The article points out that small businesses “hold a special place in the American political imagination for reasons that go far beyond their ability to create jobs and nurture healthy neighborhoods.

“Two centuries ago, our forefathers and mothers dumped thousands of pounds of tea into Boston Harbor to protest British policies that gave the powerful East India Company an advantage over local tea merchants.

“Ever since then we’ve rightly viewed independent businesses as essential to liberty and democracy, a safeguard against the tyranny of concentrated power. It’s time that lawmakers reflect that value, not only in their rhetoric, but in their actions.”

For more on the Advocates of Independent Business, visit www.indiebizadvocates.org.

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