Commentary

Let’s Stimulate Small Business

By Kimble F. Ainslie, Ph.D.
December 20, 2001
President Bush traveled to Orlando, Fla. two weeks ago to offer solace to recently unemployed workers in the hospitality industry — Disney has apparently laid off 1,400 workers since the Sept. 11 attacks. While there, he might have turned his motorcade around the corner and traveled down the street to find out how small business is reacting to the cheers for his “stimulus package.”

First, consider the rising rate of public spending proposed in the stimulus package. Fortunately, the House and Senate are stalled on the package, as their plans have gone past the president’s $70 billion proposal. Indeed, at last count, the bill to the nation had risen past $100 billion. And, for what purpose?

Last week stock markets across the United States turned the corner, and, according to many analysts, the economy will be humming along by the second quarter of 2002. So what’s the point of all this spending? Why are the Democrats dreaming up new ways to upset the stability of the nation’s fiscal condition with raising the prospect of rising deficits? It is daily becoming evident that the post-Sept. 11 economy is righting itself, as we would expect of unencumbered commercial markets.

However, what really grinds the gears of small business owners is the near-complete inattention by lawmakers on who creates jobs.

Bush and the Republican House have been pushing an economic stimulus that contains a huge tax give-away to America’s largest companies, the Alternative Minimum Tax, worth more than $25 billion. The justification for that corporate welfare is the prospect of correcting job losses, now up to 500,000 since the terrorist attack.

But as just about every serious study on employment creation has shown, small business in this country is the primary engine of job growth, not large corporations. Firms with less than 100 employees create a minimum of 85 percent of all net new jobs. So if Congress really wants to create the underpinnings of an economic stimulus, they would be better off to provide immediate tax and regulatory relief to small business.

As my Cato colleague, Chris Edwards, recently told a House subcommittee, “a 5 percent cut in individual tax rates,” which affects all unincorporated proprietors, “increases capital investment by about 10 percent.” And a reduction of “the top tax rate from 40 percent to 33 percent would increase hiring by about 12 percent.”

But let’s get back to Florida. When President Bush arrived in Orlando, he made his first stop at a new “public-private partnership” initiated by his brother, Gov. Jeb Bush, called Operation Paycheck. The state of Florida wanted $35 million for this new post-Sept. 11 training and education program for dislocated workers. Seems fine. Except that Florida’s unemployment rate is less than the national average, and according to its state workforce board, rising unemployment after Sept. 11 leveled off in November.

But here’s a further rub. Federal and state funding for occupational training and vocational education have been going on for years in that state (and others) with almost no positive employment effects.

For example, a report from the Florida Legislature’s program evaluation agency in June 2001 indicated that “60% of the adult vocational certificate programs provided between 1992-3 and 1995-96 graduated five or fewer students statewide and/or had poor employment incomes for students who completed the programs.” The full report by the Office of Program Policy Analysis and Government Accountability — no bastion of conservative analysis — came to similar and more damning conclusions in November 2001 about the state’s entire community college system. Florida is not alone.

And that’s not all. Florida’s one-stop career centers, 171 of them, essentially financed by the federal Workforce Investment Act, 1998, have been going about the serious business of putting private staffing services (employment) firms out of business since 1997. Why? Those federally funded employment centers give away their services to corporations at no charge. Also, they regularly give away huge sums in grant money for corporate training.

In central Florida, where Bush spoke, the injury to the staffing services sector of the small business community has been significant. In fact, Bush delivered his remarks at one of those one-stops. Small business is again confused by the presidential signals in Orlando.

Kimble Fletcher Ainslie is a public policy analyst at the Cato Institute.