Why is the GOP Blocking the Small Business Bill?

By EDMUND L. ANDREWS, Posted: August 19, 2010

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In most cases, Republicans justify their opposition on what sounds like principle – this bill would widen the deficit, that one would stifle financial innovation and the other would foster “socialized medicine.” The arguments are often thin, and sometimes absurd, but they do resonate with conservative voters.

But then there is the Small Business Job Creation Act, an Obama initiative that Republicans blocked late last month. Here is a bill that small business groups support; that addresses a real economic issue; that could spur job creation; and that does NOT increase the deficit.

What’s not to like? Nothing, really. As Felix Salmon remarked on his blog earlier today: "There aren’t many things that the government can do to try to boost the number of jobs in the U.S., but at the top of the list has to be attempts to boost lending to small and medium-sized businesses."

When Republicans blocked the bill last month, many said they supported it. Their complaint was that Democrats wouldn’t allow votes on as many of their proposed amendments as they wanted.

At the White House today, President Obama made another pitch for the bill and jabbed at the opposition. “I recognize that there are times when Democrats and Republicans have legitimate differences,” Obama said. “There are times when good people disagree in good faith. But this is not one of those times.”

The president is right. Small businesses employ more than half of all private sector workers in the United States, and they are usually among the earliest to start hiring again after a recession.

But small businesses have been hammered unusually hard in this downturn and they are lagging in this recovery. On Wednesday, the Labor Department reported that very small firms – those with fewer than 50 employees – accounted for 61.8 percent of all job losses in the fourth quarter of 2009. And though companies began hiring again in 2010, monthly surveys by the National Federation of Independent Business show that small companies have barely begun to rebuild their workforces. Indeed, the NFIB’s July survey showed that small business owners were still almost as pessimistic as they were at the height of the financial crisis.

Job creation has slowed to a crawl in the last few months, and it could stall entirely. On Thursday, the Labor Department reported that initial claims for unemployment benefits jumped to 500,000 last week -- the highest level since last November.

There are many reasons that small businesses lagging, but one of them seems to be the difficulty in getting loans. Banks are still reeling from losses on real estate and from the financial crisis more generally. Banks have drastically tightened lending standards, and many small businesses are less creditworthy than before.

The Small Business Job Creation Act would give small companies several billion in new tax breaks, increase lending through the Small Business Administration and create a $30 billion small business lending fund.

The fund would provide capital to community banks, which would have big incentives to ramp up their small business lending. Because the banks could leverage that capital, supporters say it could encourage as much as $300 billion in additional lending.

The bill is entirely paid for. The costs of the tax breaks are completely offset by the removal of other tax breaks, including a big one for the oil industry. The lending fund is expected to essentially break even as the banks repay their loans with interest. In fact, the Congressional Budget Office estimates the lending fund would actually generate about $1 billion in extra revenue at the end of ten years.

It would be a mistake to suggest that the small business bill is some kind of cure-all. The only real cure-all will come when the economy gets back on a normal footing, which may take years. But the bill addresses a real problem for many small business owners. It doesn’t add to the deficit and it doesn’t seem to have any other pernicious side-effects. If Republicans can’t go along with something like this, what hope is there they will work with Democrats on any of the really big issues?

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Senate Republicans have been brazenly open about their strategy of trying to block any and every Democratic bill they can. It doesn’t matter what the bill is about – health care, financial regulation, economic stimulus and even the updated START treaty with Russia. If it’s a Democratic initiative, Republican leaders are against it. In most cases, Republicans justify their opposition on what sounds like principle – this bill would widen the deficit, that one would stifle financial innovation and the other would foster “socialized medicine.” The arguments are often thin, and sometimes absurd, but they do resonate with conservative voters. But then there is the Small Business Job Creation Act, an Obama initiative that Republicans blocked late last month. Here is a bill that small business groups support; that addresses a real economic issue; that could spur job creation; and that does NOT increase the deficit. What’s not to like? Nothing, really. As Felix Salmon remarked on his blog earlier today: "There aren’t many things that the government can do to try to boost the number of jobs in the U.S., but at the top of the list has to be attempts to boost lending to small and medium-sized businesses."When Republicans blocked the bill last month, many said they supported it. Their complaint was that Democrats wouldn’t allow votes on as many of their proposed amendments as they wanted. At the White House today, President Obama made another pitch for the bill and jabbed at the opposition. “I recognize that there are times when Democrats and Republicans have legitimate differences,” Obama said. “There are times when good people disagree in good faith. But this is not one of those times.” The president is right. Small businesses employ more than half of all private sector workers in the United States, and they are usually among the earliest to start hiring again after a recession. But small businesses have been hammered unusually hard in this downturn and they are lagging in this recovery. On Wednesday, the Labor Department reported that very small firms – those with fewer than 50 employees – accounted for 61.8 percent of all job losses in the fourth quarter of 2009. And though companies began hiring again in 2010, monthly surveys by the National Federation of Independent Business show that small companies have barely begun to rebuild their workforces. Indeed, the NFIB’s July survey showed that small business owners were still almost as pessimistic as they were at the height of the financial crisis. Job creation has slowed to a crawl in the last few months, and it could stall entirely. On Thursday, the Labor Department reported that initial claims for unemployment benefits jumped to 500,000 last week -- the highest level since last November.There are many reasons that small businesses lagging, but one of them seems to be the difficulty in getting loans. Banks are still reeling from losses on real estate and from the financial crisis more generally. Banks have drastically tightened lending standards, and many small businesses are less creditworthy than before. The Small Business Job Creation Act would give small companies several billion in new tax breaks, increase lending through the Small Business Administration and create a $30 billion small business lending fund. The fund would provide capital to community banks, which would have big incentives to ramp up their small business lending. Because the banks could leverage that capital, supporters say it could encourage as much as $300 billion in additional lending. The bill is entirely paid for. The costs of the tax breaks are completely offset by the removal of other tax breaks, including a big one for the oil industry. The lending fund is expected to essentially break even as the banks repay their loans with interest. In fact, the Congressional Budget Office estimates the lending fund would actually generate about $1 billion in extra revenue at the end of ten years. It would be a mistake to suggest that the small business bill is some kind of cure-all. The only real cure-all will come when the economy gets back on a normal footing, which may take years. But the bill addresses a real problem for many small business owners. It doesn’t add to the deficit and it doesn’t seem to have any other pernicious side-effects. If Republicans can’t go along with something like this, what hope is there they will work with Democrats on any of the really big issues? Visit the Vault home page here .