Small Business Lending Bill

[JewelSong]

[I split this off from the Tea Party thread, as it clearly is a completely separate subject - VtF]

Obama Signs $30B Small Business Lending Bill

Thoughts?

Obama said small businesses are "the anchors of our Main Streets," creating most of the jobs in the country.

"It was critical that we cut taxes and make more loans available to entrepreneurs," he said before signing the bill in the East Room of the White House. "Today, after a long and tough fight, I am signing a small business jobs bill that does exactly that."

The bill creates a $30 billion government fund to help encourage lending to small businesses, many of which have been having difficulty securing bank loans and credit.

[Cenedril_Gildinaur]

It's a multi-prong problem. There are also businesses unwilling to lend. This hearkens back to the problem of 1934 when businesses were reluctant to do anything due to the problem of regime uncertainty - what will the government do to us next?

Credit Shortage or Regime Uncertainty?

[JewelSong]

Thank you, V...the Tea Party discussion had turned to the need for less taxes and more small businesses, so it seemed appropriate there. This bill seems to be exactly what the Tea Party is "for" - I wonder how they will react to it, since it has much of what they have been clamoring about.

I particularly wanted to hear Hal's take on this, as it seems like something he would be in favor of. Hal, what do you think about this? Is it a positive step? It lowers taxes considerably for small business owners and allows them to hire more staff, which is good for the economy. Would something like this have helped you in your business venture?

ETA clarity.

[halplm]

No, it would not have helped me. the bank still wouldn't have lent me anything, and the banks lend the money, not the SBA. (and that's assuming that being able to borrow money would actually help).

The bill is entirely election year political posturing. If it does anything to help small business, that's great, but when you're going to raise taxes more than ever before in four months, I don't think many businesses are going to rush out and borrow a bunch of money to expand.

I don't think the idea this will create jobs is entirely well thought out, either. The absolute last thing a small business wants to do when money is tight is hire more people, because the most expensive thing in the world for small business is an employee. The return you get for the cost is always hard to justify. And no, being able to borrow more money is not an incentive to hire.

It's good to see that you can deduct an extra 5 grand for starting a business in the next 4 months, though... I'm sure that a lot of people weren't going to be able to start their business this year, but now that they'll be able to get 5 grand more deducted from their taxes they'll rush right out and do it... (that was sarcasm, btw...)

I'm getting my info right off the white house's page, so I'm assuming this is about as rosy a picture of the bill that can be had.

The capital gains tax cut is great... for all those business that have money to invest... who can afford to put that investment away for 5 years... and are ready to make that investment right now.

The tea party movement doesn't want the ability to borrow more. The tea party movement doesn't want temporary tax cuts with built in conditions that only increase bureaucracy.

Why would anyone be excited about being able to deduct their cell phone costs easier (not more, but easier).... when their taxes are going to be jacked up immensely in 4 months?

[vison]

What taxes and by how much?

[River]

S was saying that instead of paying tax on all earnings, they'd only have to pay tax on profits, so if his four-man company were to dump all their earnings into equipment then they won't have a profit and therefore won't pay a tax. I think they're leaning in that direction as some of hte stuff they need costs $10K...for the cheapest model. Once they've got a proper lab up and running, they'll be able to shift more of their operations towards designing and testing stuff rather than consulting (which, while it does bring in $$$, isn't what any of them really want to be doing). Also, it would be a long term savings for them to have their own because then they can stop paying hourly rates for lab access elsewhere.

I'm not sure if the loosened up lending will have any effect though. They've been avoiding both bankers and investment capitalists like the plague (which would be why they're trying to earn the money to buy their equipment rather than borrow it).

[halplm]

What taxes and by how much?

The ones Bush Cut, and by a lot.

Off topic, but how bad of a job did the democratic PR machine do with the phrase "Bush Tax Cuts" The biggest bad guy they had is now,for this election season anyway, mostly associated with tax cuts they want to get rid of...

[River]

Wasn't Obama proposing to maintain the tax cuts for people who made less than $250K/year? That's, like, 98% of the country. The other 2% gets returned to those exorbitant Clinton and Reagan levels.

[N.E. Brigand]

What taxes and by how much?

The ones Bush Cut, and by a lot.

Yes, the temporary tax cuts passed at President Bush's behest ten years ago are due to expire, as they were promised to do. These cuts contributed significantly to increasing the size of the deficit, but as Karl Rove said, "Deficits don't matter". The impending expiration will return rates to something like they were in the awful years of the Clinton adminstration, but still won't be anywhere near so high as they were in the even worse Reagan, Nixon, and Eisenhower administrations.

President Obama has proposed to extend the tax cuts for the middle-class, and let only the cuts on higher incomes expire. Fiscally, it would be more responsible to let them all expire.

But I believe hal is technically right that letting these tax cuts expire would represent the single largest tax increase ever -- which might only mean that they'd been cut too far.

[vison]

Thanks, NE and River.

[halplm]

Or not cut enough, while spending not cut at all.

The tax cuts were only "temporary" to get support from democrats. Technically all tax cuts or increases are temporary, because the laws change all the time.

"Letting the cuts expire" is exactly identical to "raising taxes."

Obama can propose not raising taxes on whoever he wants, but we don't know what the congress will hand him, and he's not pressuring them to do anything at the moment.

The middle class won't be earning enough to pay taxes if the businesses are taxed so much they can't employ anyone.

[N.E. Brigand]

Hal, since taxes were higher from the 1950s through the 1990s than they are now, why was unemployment not consistently high then?

[Voronwë the Faithful]

Actually, the tax cuts were temporary because they were "rammed through" using (or some would say misusing) the same budget reconciliation procedure that the Democrats used/misused to "ram through" the final health care bill, after losing their filibuster-proof majority in the senate with Scot Brown's victory. Budget reconciliation requires that the passed measure not increase the deficit for more than ten years, hence the fact that the tax cuts are now expiring.

And of course, many of the same Republican senators that screamed bloody murder when the Democrats were threatening to use budget reconciliation to pass the final changes to the health care bill were the ones that used the process to pass the tax cuts.

Interestingly, the 2001 tax cuts were passed by a 58-33 vote, with twelve Democrats joining all but one Republican. The one Republican holdout? John McCain, of course.

[N.E. Brigand]

Thanks for the clarification, Voronwë.

[halplm]

Actually, the tax cuts were temporary because they were "rammed through" using (or some would say misusing) the same budget reconciliation procedure that the Democrats used/misused to "ram through" the final health care bill, after losing their filibuster-proof majority in the senate with Scot Brown's victory. Budget reconciliation requires that the passed measure not increase the deficit for more than ten years, hence the fact that the tax cuts are now expiring.

That is a gross distortion of reality. Democratic support was almost entirely necessary (The Republicans had control with a tiebreaker if they could get all their 50... which wasn't a sure thing). In order to get the necessary support of Democrats, who were willing to use reconciliation, the temporary nature was accepted.

And of course, many of the same Republican senators that screamed bloody murder when the Democrats were threatening to use budget reconciliation to pass the final changes to the health care bill were the ones that used the process to pass the tax cuts.

Seriously? Again? reconciliation is to pass a budget. Health care reform is not passing a budget.

Interestingly, the 2001 tax cuts were passed by a 58-33 vote, with twelve Democrats joining all but one Republican. The one Republican holdout? John McCain, of course.

And people wonder why conservatives don't like him.

[halplm]

Hal, since taxes were higher from the 1950s through the 1990s than they are now, why was unemployment not consistently high then?

Well, the simple answer is that taxes aren't the only factor determining unemployment.

I'm not sure you can even compare the economies of today with the economies of then. I'm also not sure the "taxes here higher" is such a simple thing to say. The tax code is entirely different. There are loopholes that have been opened, and loopholes that have been closed.

Also, the population is entirely different now than it was... not to mention levels of and types of regulation.

In other words, you could probably write a doctoral thesis in response to your question

[Voronwë the Faithful]

Seriously? Again? reconciliation is to pass a budget. Health care reform is not passing a budget.

Reconciliation was designed to be used for budget measures that reduced deficit spending. Those massive tax cuts were about as opposite to that goal as could be imagined.

[halplm]

Seriously? Again? reconciliation is to pass a budget. Health care reform is not passing a budget.

Reconciliation was designed to be used for budget measures that reduced deficit spending. Those massive tax cuts were about as opposite to that goal as could be imagined.

On the contrary, tax cuts can and do reduce deficits. There just happened to be a problem with the economy from, you know, terrorists, and then Bush decided he didn't like cutting spending.

[N.E. Brigand]

Seriously? Again? reconciliation is to pass a budget. Health care reform is not passing a budget.

Reconciliation was designed to be used for budget measures that reduced deficit spending. Those massive tax cuts were about as opposite to that goal as could be imagined.

Yep. From last January, in an essay with the prophetic title Battling Tomorrow's Misinformation Today:

Some critics have charged that using reconciliation to enact a major change in policy, such as health reform, would be unprecedented and would represent a gross misuse of the process. A review of the past use of reconciliation demonstrates, however, that this charge is incorrect:

Details at the link.

[River]

Exactly how does reducing revenue help anything?

Anyway, from N.E. Brigand's link (bolding is from the article):

# Congress has employed reconciliation many times to make major policy shifts. These include sweeping welfare reform enacted in 1996, massive tax cuts in 2001 and 2003, and creation or expansion of several health coverage programs. Using reconciliation to help enact health reform would be consistent with past congressional practice, as Thomas Mann and Molly Reynolds of the Brookings Institution and Norman Ornstein of the American Enterprise Institute have explained.

# The sharp break with past practice took place in 2001, when Congress used reconciliation to enact a large tax cut that greatly increased federal deficits and debt. Prior to 2001, every major reconciliation bill enacted into law reduced the deficit. In 2003 Congress used reconciliation to pass another round of deficit-increasing tax cuts.

# If health reform is enacted in part through use of the reconciliation process, the reconciliation legislation will have to be designed so it does not add to the deficit. In 2007, the House and Senate adopted rules preventing Congress from using reconciliation to increase deficits and debt as was done in 2001 and 2003.

# Since rising health costs are the single largest reason for projected long-run deficits, it is appropriate that health reform be considered through the reconciliation process.