It's a known fact that small businesses lead the way in economic recovery. The last two recessions (early 2000s and early 1990s) showed that existing small businesses that expanded made for the majority of the net new jobs created, while the larger companies continued to trim their workforce.
This Great Recession is proving a little more challenging to this axiom. Small businesses are not hiring as much as was to be expected given the historical examples of how recessions progress. Then again, this Great Recession is no ordinary recession. Myriad reasons abound to why small businesses aren't expanding their workforces, but a couple of recent examples may help shed some light on the matter.
Yesterday's Washington Post story, "Small businesses feel squeezed by Obama policies," points out that national polling of small businesses contain a common concern: optimism is waning and much of the prevailing pessimism stems from new regulations, administration initiatives and mandates that "are making owners feel overburdened, overregulated and less secure about the economy."
On the local level, George Bartell, of the eponymous Bartell Drugs, penned a piece in last week's Puget Sound Business Journal entitled "I-1098 threatens small, medium businesses." In the piece, he says that the benefit of the $400 in B&O tax credits enjoyed by some small businesses will be lost among the cost of the tax increase, particularly to subchapter S corporations -- businesses that report its income on the owner's personal income statement. This could create the situation where a business owner is reporting over $200,000 (or $400,000 jointly) of income on their income statement, but in reality netting far less than that in take-home pay, and yet still be subjected to the five or nine percent income tax.
Josh Feit over at Publicola is following the debate about whether I-1098 would penalize small business owners. It's worth a read.
The bottom line is that much of the business community is siting relatively still, waiting for some important decisons to be made. On the national level, the debate is centered on the Bush tax cuts and their expiration at the end of 2010. On the local level, the debate is aimed squarely at I-1098 and the recent spate of legislative tax increases on the business community. Until policymakers get things get ironed out, the business community's confidence will continue to stay artificially depressed, which will continue to cost Washingtonians jobs.