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Is Washington Making the Right Investments for Small Businesses?

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From creating jobs to providing essential services, small businesses lie at the cornerstone of the American economy, and the government is finally giving independent enterprises their proper due. New legislation such as the JOBS Act and proposed tax cuts has all been somehow oriented toward small businesses.

Nonetheless, as we saw from the most recent tax plans, some of these measures may not help small businesses at all. In fact, they may even harm small businesses by driving more money toward big businesses–the ones who can afford lobbyists and six-figure donations. As election season begins and small businesses continue to combat the nationwide recession, we all have to ask: Is Washington putting money in the right places?

Is Washington Making the Right Investments for Small Businesses?

Tax cuts for job creation: fact or fiction?
Proposed tax cuts and other government measures all have the same justification: making more jobs. Of course this serves the dual purpose of encouraging small business owners and leading others to vote. However, when the numbers are actually crunched, the proposed tax cuts may not actually be the driving force behind job creation.

In an episode of NPR’s This American Life, correspondent Chana Joffe interviewed the owner of a growing small business in Wisconsin called Saris. The company makes bike racks, and Wisconsin Governor Scott Walker signed a tax cut bill into law inside the shop, as a sort of homage to small businesses—with the promise that such tax cuts would create more jobs.

However, when the CEO Chris Fortune actually calculated the amount he saved from the tax cut, he only saved $2,000. “The math doesn’t work for me as the motivator to hire people,” said Fortune, “It may work for somebody else, these financial programs. But it doesn’t work for us.” Tax cuts will likely save people some money, as some have claimed with the Affordable Care Act, but as Fortune says, the savings may not actually be enough to hire full-time employees.

Can government spending actually create jobs?
Many experts say yes: government spending can make scores of jobs, so as long as the money goes to the right place. Professor Scott Shane compared a series of reports for Businessweek, which looked at the industries that would create the most jobs from government spending. An ecological restoration project at the University of Oregon projected 15 jobs for every $1 million of government spending. To contrast, child-care facilities in California expected 23 new jobs for the same amount; while a utility company estimated over 200 jobs derived from that million.

Granted, not all jobs are created equal: you can hire significantly more part-time, hourly workers for the same amount of money as a scattering of full-time employees with benefits. Another question then comes up, of whether the government should invest in industries that hire primarily wage workers or sectors that can generate more full-time employment. While even part time work may be a boon for many unemployed Americans, the security of full time work is essential. According to Chron.com, small business owners can benefit from both part-time and full-time employees.

Job creation has geographic aspects too, reports Shane. For example, he cites one report that projects a $3 billion output increase would create 7,287 jobs in California, but only 18 new jobs in North Dakota.

From the type to the place of employment, job creation is not as simple as cutting taxes or throwing money where the political party needs more votes. As small businesses know, every dollar counts and investments should be made carefully and with the long run in mind—the folks in Washington could learn a thing or two.

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