Thinking Entrepreneur
An owner’s dispatches from the front lines.
I am trying to decide when exactly small businesses became the official poster child of the latest economic disaster. This is a relatively new phenomenon, but it’s been building for a few years. Sometimes, the attention feels good. I didn’t know everyone cared! Sometimes it feels like pandering. I have a suspicion that some of the people who are always arguing that we will destroy small businesses if we raise income taxes on the wealthy don’t really care that much about small businesses, but it sounds noble.
Over the last 33 years, my business and I have been through numerous recessions, and this is the first time I have seen so much attention given to small businesses. It feels both flattering and insulting, comforting and unsettling, honest and disingenuous. Sometimes it feels like a mother talking about her troubled teenager. “He’s a good kid, just misunderstood.” For all the attention and good intentions and well-meaning efforts to help, I do think small businesses are often misunderstood.
Running a small business can be very simple and very complicated. The simple part is how to be successful. Deliver a good product or service, price it properly and learn how to market it effectively. The hard part is avoiding all of the pitfalls along the way. Even in the best of times, we small-business owners run into and create plenty of our own pitfalls, but these last three years have been a pitfallapolooza. Many business owners, including some I’ve known very well, have taken pay cuts, lost lots of money or gone out of business. Too many have done all three.
For a long time, many people didn’t seem to care or even notice. Then somebody proclaimed that small businesses are the engine of job growth in this country. All of a sudden, the spotlight is on helping small businesses recover so they can create jobs. Why aren’t we talking more about getting big businesses to hire more people. After all, I keep reading that big businesses have generally recuperated quite nicely, and many are making record profits. Oh, but they aren’t the engine of job growth. We need small businesses to do that.
Enter President Obama, with his jobs plan. Here’s my take on what I, as a small businessman, heard in his speech: He recognizes that the politics of Washington have made the problem worse. Good. He says he’s going to try to help people who are struggling with mortgage problems. That’s good, too. He knows that the solutions to these problems can’t wait until the 2012 election. That’s certainly true. He wants to close a few tax loopholes for big corporations. I think I could live with that. He wants to rebuild schools and roads and bridges. That’s probably a good idea. And he says he wants to cut more unnecessary spending. Hallelujah.
You hear a lot of people talking about how taxes and regulation are choking small businesses, but many of these people are always talking about taxes and regulation, regardless of whether the economy is good or bad. Right now, my picture-frame and home-furnishing businesses employ 110 people, and they have certainly felt the effects of the recession and the housing meltdown, but if I have a problem it’s not with taxes and regulation. It is that I don’t have enough customers with money to spend. That’s why the most important aspect of the president’s plan is that it would inject $450 billion into the economy.
At a time like this, it’s hard not to be a little nervous about the government spending that kind of money. I am not an economist, but it does appear that many economists think this kind of stimulus makes sense. I noticed that Paul Krugman, a liberal, and Mark Zandi, who was John McCain’s economic adviser, seem to like the plan. I know a lot of people think the last round of stimulus didn’t work, but I’m not so sure. Has everyone forgotten how bad things were? Does anyone know how much worse things might be? I used some of the stimulus tax breaks to free up cash in my business. I invested in new machines, and I hired new people, carefully. Obviously, unemployment is still way too high, but there has been improvement.
Still, there are a few details that concern me. Once again, I have the sense that not everyone in Washington understands how small businesses work. Part of the plan involves an across-the-board cut in payroll taxes, for employees and employers. I think that will help. It will get money into the system. Perhaps some of it will be spent on picture frames and home furnishings. That combined with the break on depreciation may well allow me, for example, to replace my incandescent light bulbs with LED bulbs, which could cost $50,000 but be far less expensive to operate. The tax breaks may also allow me to expand my market, which will result in my hiring more people. Mission accomplished.
There are additional tax breaks in the plan that are meant to encourage the hiring of new employees. An employer can get a $4,000 credit for hiring someone who has been unemployed for more than six months. It’s a little hard for me to imagine not feeling sympathy for people who fall into this category. There are additional breaks for hiring veterans, and I don’t know how anyone could oppose giving an advantage to someone who left the work force to go to war. And yet, I wonder if, in general, these kinds of targeted breaks really work. Or are they better politics than business.
I guess I would need to see more details, but I have my doubts. Will paying a bonus for the hiring of someone who has been out of work six months be fair to someone who has been out of work for only four months? What incentive does this offer a person who has been laid off for five months? Is this fair to an employer who managed to make it through the last three years with minimal layoffs, but now has to watch a competing company be rewarded for hiring back the people it let go? How long will the person have to remain employed for the employer to get the $4,000? There will probably be a whole industry started on how to game the system.
Rewarding someone for hiring is playing with nature. There really are only two possibilities: either you are rewarding employers to do something they would have done any way, or you are rewarding employers to do something they weren’t sure they wanted to do. Do you remember my comment about avoiding pitfalls? Bad hiring decisions rate right up there with the most serious. A business should hire because of demand, not because of an incentive. Think about this: If a kid’s father offered you $4,000 to hire his kid, would that have any bearing on your decision? Of course not. Why should it be any different if the money comes from the government?
Some people suggest that this credit might help if a business owner is “on the fence” about hiring someone. Here is what I have learned: If you are on the fence about hiring someone, DON’T. Get off the fence. Call more references, interview the person again, make sure you really need someone. Hiring is serious business. If it turns out that you don’t really need someone, you eventually will have to lay off this person. You will be the bad guy, the responsible guy, the guy who pays all of the unemployment insurance. You will have done no one any good. An incentive to hire might not be an oxymoron, but the word moron may enter the equation. Sorry. It has been a long three years.
So, yes, the incentives to hire new employees make me nervous. If we’re going to inject money into the system, I’d much prefer to do it across the board. Don’t try to pick winners. Don’t play with nature, especially human nature. But maybe this is just politics. Maybe this is the price we have to pay to get the boost that the president’s plan offers. I don’t know – and I don’t want to know – the politics.
On balance, I hope the plan passes. But I think I liked things better when small businesses were ignored but did well. This too shall pass.
Jay Goltz owns five small businesses in Chicago.
Article source: http://feeds.nytimes.com/click.phdo?i=f1481a7ded27b279f6825f7ed4aa8682
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