By US Secretary Tim Geithner
Chair Landrieu, Ranking Member Snowe, thank you for the opportunity to talk with you today about the Administration’s efforts to support small business.
Creating stronger economic growth and helping more Americans get back to work is today’s biggest challenge. We have succeeded in preventing the collapse of the financial system, restarting economic growth, and creating 2.6 million private sector jobs; however, economic growth remains slow and significant economic challenges remain.
America’s small businesses still face a very tough economy. They are experiencing more challenges than larger businesses in the wake of the recession. Small businesses are more concentrated in construction and retail, industries that were at the epicenter of the crisis and have not returned to pre-recession levels, and they export much less than larger businesses.
Small businesses have also been hurt by tightening credit. Unlike larger firms, small businesses rely on bank loans, personal savings, credit card debt, and mortgage finance. The fall in asset and real property values during the recession reduced the amount of resources that small business owners can draw on to invest in starting and growing their businesses.
Since January 2009, we have worked with Congress to take a multi-pronged approach to helping small businesses address these challenges. My testimony today includes an appendix with a comprehensive overview of these measures.
The main elements of our strategy are the following:
- Providing Tax Relief for Small Businesses. The Administration has supported 17 direct tax breaks that are designed to support small businesses’ ability to invest, innovate, and expand. For example, the Small Business Jobs Act allowed small businesses to immediately write off $500,000 in capital investments. Additionally, the bipartisan December tax compromise included 100 percent expensing through 2011, expanding on previous bonus depreciation measures and allowing businesses to immediately deduct the full cost of qualified capital investments. The President has also signed tax relief into law that helps small businesses and the self-employed afford health care for their employees and themselves; increased the deduction for start-up expenses to help innovators turn an idea into a thriving business; and allowed greater flexibility and streamlining of small businesses’ ability to claim certain tax incentives.
- Helping Small Businesses Access Capital. From emergency programs implemented during the financial crisis to new public-private partnerships that leverage federal resources with private investment and community expertise, we are committed to helping small businesses navigate difficult credit conditions and access the capital they need to grow, invest, and hire. During the financial crisis, almost $14 billion was invested in small banks through TARP, while modifications to SBA’s programs in 2009 and 2010 supported $42 billion in additional lending. In 2009 and 2010, CDFI Fund program awards resulted in almost $4 billion of public/private investments in our nation’s most distressed communities. We expect the Small Business Lending Fund (SBLF) to leverage approximately $9 billion in additional lending by the end of 2014, and the State Small Business Credit Initiative (SSBCI) to leverage at least $15 billion by the end of 2016.
These two programs have created important new channels to expand access to credit. Tom Swenson, the Chief Executive Officer and President of the Bank of Montana, which received SBLF funds, said, “The SBLF capital comes at a perfect time for Bank of Montana to green-light important loans to several small- and mid-sized businesses in our community.” Additionally, 50 states and territories have already been approved for more than $1.3 billion in SSBCI funds to help support their local small business lending programs. As Governor Jay Nixon said when Missouri’s SSBCI funding was approved, “These new resources will help Missouri entrepreneurs grow their operations and turn their dreams into bricks and mortar.” Missouri’s state-run venture capital fund, for example, has already completed its first round of funding with SSBCI support, investing a total of approximately $7 million to 18 small businesses.
- Encouraging High-Growth Small Businesses. We are working to address regulatory and administrative requirements that can have a disproportionate impact on start-up companies and small businesses, while the President’s Council on Jobs and Competitiveness and Startup America continue to support entrepreneurs’ efforts in an evolving economy. These efforts are aligned with the President’s call for a government-wide review to update the regulatory system so it protects the public welfare and most efficiently promotes economic growth, innovation, competitiveness, and job creation. In August, 26 agencies released their final regulatory review plans that include over 500 initiatives to reduce costs, simplify the regulatory system, and eliminate redundancies or inconsistencies. Initiatives finalized or publicly proposed by the Department of Labor, the Environmental Protection Agency, the Department of Transportation, and the Department of Health and Human Services are expected to save more than $6 billion over the next five years. We expect that the savings from the numerous initiatives government-wide will exceed $10 billion.
- Expanding Export Opportunities for Small Businesses. Small businesses face unique challenges exporting their goods and services, ranging from difficulties navigating foreign markets to fewer resources to address trade barriers and access to credit. We are implementing a number of programs to help small businesses take advantage of export opportunities, as well as making progress through the President’s National Export Initiative, which places a priority on helping small businesses access key export markets that might otherwise be difficult to reach. The new bilateral free trade agreements with South Korea, Panama, and Colombia, approved by Congress last week, will help expand export markets for businesses both small and large.
- Increasing Federal Contracting with Small Businesses. In the 2010 fiscal year, the Federal government’s contracts with small businesses totaled nearly $100 billion. We have made substantial strides towards reaching our small business contracting goals, including those for small businesses owned by minorities and women, or located in economically disadvantaged areas. At Treasury alone, 30 percent of our nearly $2.2 billion procurement budget went to small businesses in the 2010 fiscal year. These contracts have a powerful impact at the community level. For example, Genesis Business Systems, a minority-owned small business in San Antonio, Texas, was awarded $4.3 million in new contracts this year from the Treasury for information technology development and modernization work. As a result, Genesis Business Systems was able to hire 10 new employees and expand its business into new technology areas.
The most important thing we can do today to help small businesses thrive and hire is pursue policies that result in a sustained period of stronger economic growth. Since September 2008, monthly surveys have found consistently that small business owners see lack of demand and poor sales as their single biggest challenge in this difficult economic environment.
Private independent estimates suggest that the American Jobs Act will add up to 1.9 million new jobs, many of which will be created by small businesses that serve their communities across the country.
That’s why the American Jobs Act includes specific provisions targeted towards small businesses that provide direct support for firms to hire, invest, and expand. The American Jobs Act will:
- Expand and Extend the Payroll Tax Cut. The American Jobs Act will halve businesses’ payroll taxes on the first $5 million in payroll, reducing their payroll tax rate from 6.2 percent to 3.1 percent. These tax cuts would be available to all businesses, but are designed to target smaller firms. Tax relief would be focused on the 98 percent of businesses with less than $5 million in payroll.
- Encourage Firms to Hire and Increase Wages for Existing Workers. The American Jobs Act will completely offset employer payroll taxes on newly hired workers or on pay increases for current workers, compared to the previous year. This will encourage businesses to both grow their workforces and raise wages for existing employees. This tax relief will be capped at $50 million in new wages to target the benefit towards small and mid-size firms. In addition, the American Jobs Act includes generous, targeted tax incentives for firms of all sizes to hire individuals who have experienced long periods of unemployment and veterans returning from the conflicts in Iraq and Afghanistan.
- Reward Firms for Making New Investments. The American Jobs Act will extend 100 percent business expensing through 2012, allowing companies to deduct the full value of new investments from their tax obligations.
- Support Entrepreneurship. The American Jobs Act supports Americans trying to start their own businesses by allowing states to use federal unemployment insurance funds to support self-employment assistance programs for long-term unemployed workers who want to start their own business. Participants in these programs are 19 times more likely to be self-employed at some point after being unemployed, and four times more likely to obtain employment of any kind, than eligible non-participants.
- Help Small Businesses Access Capital to Grow. The President has also called for policy changes that will make it easier for entrepreneurs and small companies to raise capital and go public in ways that are consistent with investor protections. First, we support raising the cap on the exemption from SEC registration for small public offerings from $5 million to $50 million through changes to the SEC’s Regulation A. Second, we propose establishing a “crowdfunding” exemption from SEC registration requirements for firms raising less than $1 million (with individual investments limited to $10,000 or 10 percent of investors’ annual income). Third, we will work with the SEC to explore ways to address the costs that small, newly public firms face in complying with Sarbanes-Oxley disclosure and auditing requirements. These changes would improve small businesses’ ability to grow and create jobs.
All the measures listed above aim to provide direct support to small businesses. But many of the American Jobs Act’s other provisions – such as those that will help modernize our schools, repair our infrastructure, and deploy wireless high-speed internet – have multiple benefits, one of which is generating new business for small firms or helping them grow and compete in communities nationwide. And although these investments will help get our economy firmly on the right track today, they will also make lasting improvements in communities across the country to support our economic strength for decades to come.
The Administration is also pursuing a number of common-sense steps that do not require legislation to help small businesses. These measures include:
- Accelerating Government Payments to Small Contractors. Last month, the Administration launched QuickPay, which calls on federal agencies to pay contractors for the products and services they provide within 15 days, rather than 30 days, after receipt of an invoice. This change will put billions of dollars into the hands of small businesses more quickly, eliminate their need to make interest payments necessary to finance their operations, and help put and keep small businesses on stronger financial footing.
- Improving Small Businesses’ Access to Government Programs and Services. President Obama will ask his Chief Information Officer and Chief Technology Officer to stand up BusinessUSA, an online platform through which businesses can access the full range of government programs and services necessary for them to compete globally.
- Helping Small Businesses Compete for Infrastructure Projects. To help small firms compete and win bids on infrastructure projects, we support temporarily increasing the limit on surety bonds guaranteed by the Small Business Administration (SBA) from $2 million to $5 million.
Last month, the President summarized our approach to healing our economy during his address to a joint session of Congress. He said:
What’s guided us from the start of this crisis hasn’t been the search for a silver bullet. It’s been a commitment to stay at it – to be persistent – to keep trying every new idea that works, and listen to every good proposal, no matter which party comes up with it.
The ideas in the American Jobs Act demonstrate that commitment. The approaches we’ve taken to support small businesses demonstrate that commitment. We will continue to stand by it. And we’ve seen results from it – 2.6 million private-sector jobs created since March 2010. We hope Congress will take the opportunity to pass the provisions in the American Jobs Act, which independent economists estimate will create up to 1.9 million new jobs and increase GDP by up to two percent.
I join the President in urging this Congress to work together and take action – to support the specific provisions in the American Jobs Act, which both Democrats and Republicans have embraced in the past. The government needs to act to strengthen overall growth to improve the conditions for our small businesses, so that they have the confidence and the resources to put Americans across the country back to work.
Secretary Tim Geithner before the Senate Small Business and Entrepreneurship Committee,
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