The Small Business Job-Less Act: What Was Congress Thinking?

The legislation President Obama signed in September was supposed to promote hiring by small business. Now that the provisions have had some time to kick in, it's clear that in reality, the law will probably do little if anything to encourage small employers to beef up their workforces. Why? Its provisions largely benefit large companies. And those that do benefit small firms don't do much for the ones most likely to hire.

The Small Business Administration, as the federal government's primary advocate for small business, trumpeted the idea that the new law would put more capital in the hands of small business owners. Perhaps. But let's grade the more problematic features of the law when it comes to hiring:

The SBA's synopsis highlighted, among other things, the fact that the law permanently raised from $2 million to $5 million the maximum size of loans the government would guarantee through its most popular financial programs. What's wrong with that? Small businesses don't need bigger loans. They need more smaller loans, more readily available. Bigger businesses need bigger loans.
Grade: C
The law also increased the size of small businesses that are eligible for SBA-backed loans to those with $15 million in net worth and $5 million in average net income. Again, this affects few small businesses, while opening the door to more big firms.
Grade: D
There is also $12 billion worth of tax relief for investments small business owners make in their firms. While this is fine for small companies who have the business to support it, it doesn't mean they'll be hiring soon. Indeed, small firms will, instead, use it to purchase more updated, automated machinery and equipment that will reduce their need to hire. Perhaps most importantly, it does nothing to help a large number of the hottest-burning engine of job creation: Small, fast-growing, young companies. Why not? These revved-up fledglings are likely to be operating in the red, with no profits to shelter from taxes.
Grade: C-
In addition to these misguided moves, the law is rife with the sort of special-interest provisions that cause legislative critics to froth and that also cause unintended consequences that may actually worsen matters. For instance, deductions for employer-provided cell phones. It's clear how this benefits the Apples and Verizons of the world. It's less clear how it will encourage small-business hiring. Likewise the expansion and extension of a pilot problem that allows SBA to guarantee open-ended credit for inventory purchases to dealers of cars, boats, recreational vehicles and the like. This helps carmakers -- none of which are small companies -- sell more vehicles. It may even improve profits for dealers. It does nothing directly to encourage hiring.
Grade: F
Some of the Small Business Jobs Act provisions are likely to be helpful. For instance, one change increased the maximum amount of SBA Express loans from $350,000 to $1 million. This is closer to the sweet spot for small business borrowers. But all in all, the creators of this legislation seemed to have failed to learn from the Hiring Incentives to Restore Employment (HIRE) Act passed last March. This legislation specifically and narrowly targeted hiring, by letting employers off the hook for their share of Social Security taxes on wages paid to unemployed workers they brought on board.

The bottom line for small business owners is to try to get involved early on when Congress proposes legislation to encourage them to hire. If they can put their voices in the mix, perhaps future bills will actually do what they claim to.

Mark Henricks has reported on business, technology and other topics for The New York Times, The Wall Street Journal, Entrepreneur, and other leading publications. Follow him on Twitter @bizmyths.
Image courtesy of Flickr user kanu101, CC2.0