By Darrell McKigney
President, Small Business Survival Committee
Our economy is now at a crucial point.
For months the economy has been weakening. According to a recent analysis by economist Lawrence Kudlow, for the first two quarters of this year, when you factor out increases in government spending, the non-government sector of the economy – the private sector – has actually seen a decline in GDP.
The horrific attacks on September 11th took a slowing economy and brought it to a standstill. Now as this pause ends, the question is: what direction will we go? Will President Bush and the Congress be as focused, united and bold in responding the economic consequences of the September 11th attacks as they have been in responding to the security and military side of the challenge?
If we make the right moves now, we can return to the tremendous growth path our nation has enjoyed for the bulk of the past two decades. If we make the wrong moves, we risk setting the economy back for some time. If we do nothing, we risk stumbling along as we have been since the morning of September 11th.
The success or failure of small businesses in the coming months will be the bench-mark for measuring whether we’ve made the right moves.
Small businesses and entrepreneurs are the true bell-weathers of the American economy. Over the past decade, small businesses have created roughly three-quarters of the new jobs and were a primary engine of economic growth.
But just as important, the success of small business is not only important to the economy, but in the most basic sense a true measure of the state of the American spirit.
During the good times of the past decade, nearly half of all small businesses failed within four years. But that high failure rate shouldn’t be misinterpreted.
High small business failures not only measure the difficulties of an economy, but also in some sense measure the optimism people have about the future. People take greater risks in good times than bad. They have more hope and confidence in pursuing their dreams. They worry less about the chances and consequences of failure.
They risk more because they hope for more. They fail more because they have the confidence to risk more.
When the economy gets tough, a lot of small businesses don’t even make it to the starting gate. Right now too many would-be entrepreneurs lack the confidence that they will succeed in the long run. That’ why Congress must act now to restore the long-term confidence and optimism about the future entrepreneurs urgently need.
Four key initiatives that would send a strong, positive signal about the future and reinvigorate the entrepreneurial spirit:
First, Congress should speed up and make permanent the tax relief measures it passed earlier this year, particularly the cuts in income taxes and the repeal of the death tax.
For most small businesses, income taxes and business taxes are one and the same. In fact, over 90% of businesses pay personal income taxes, not the corporate income tax. Cutting taxes immediately increases the profitability of doing business and immediately enhances the prospects for success
Second, we should dramatically cut or even eliminate the capital gains tax. Perhaps nothing has proven to inspire investment and growth as much as cutting capital gains taxes. Four times in the past century, the capital gains tax has been cut and the economy has bolted forward.
Third, Congress should grant President Bush the trade promotion authority he seeks and encourage him to use it aggressively. Ninety-seven percent of exporters are small businesses. Opening and expanding new markets would inspire new ventures, as well as giving the President a stronger hand internationally at this crucial time.
Finally, Congress should pass the President’s energy plan which increases domestic energy production and decreases this country’s dependence on foreign oil.
Affordable and reliable energy into the future is essential for any long-term growth. And the tragedies of September 11th have only heightened the vulnerability small businesses and investors feel about the prospects of a future energy crisis.
President Bush and Congress have done much to restore confidence in our government by acting boldly and in unison in their response to the terrorist attacks. By demonstrating a similar unity and boldness in taking on our current economic challenges, they can likewise restore the confidence our nation’s entrepreneurs and their customers.
Darrell McKigney is the president of the Small Business Survival Committee, a Washington-based small business advocacy group with 70,000 members nationally.