A message to president, Congress — A remedy to a critical component

December 29, 2008
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According to U.S. government statistics, approximately 90 percent of all businesses in America are classified as small businesses. They represent the brunt of U.S. total employment. By virtue of sheer numbers, they also represent the most significant tool to reverse the economic meltdown. So, why aren’t we having more discussions by the White House or in Congress about the impact of small businesses? The focus of most of the bailout discussions has clearly been on the largest of U.S. corporations.

After three solid months of no questions and virtually no oversight of the financial industry, and constant badgering and oversight hearings of the auto industry, what do we have to show for the effort? We have record foreclosures, little or no liquidity getting to the people who really need the loans, roller-coaster stock market reports, and many small businesses lining up for Chapter 11 or 7 bankruptcy attorneys. How does that get us out of this meltdown?

The big banks have failed to keep faith with their most loyal customers, the small business owners and their employees. We have heard numerous accounts of small business owners who have never missed a loan payment or been denied credit for 20, 30 or even 40 or more years, who suddenly are denied a simple line of credit. How does this happen and what can be the outcome?

We propose a very simple and constructive solution. The President must issue an executive order, approved by Congress, to put a one- to three-year moratorium on taxable events that occur when small businessmen and women attempt to save their businesses by surrendering their life insurance policies, 401(k) accounts (or as the current joke goes, 101(k) accounts), IRA accounts or personal savings accounts. While Congress and the White House have been debating bailout packages for major corporations, small businesses have been caught in the meltdown and find themselves floundering, trying to meet payrolls, pay vendors, keep customers, advertise their products and services, contribute to employee 401(k) plans, United Way and other humanitarian causes, pay health and liability insurance premiums, and pay unemployment and other taxes and workers’ compensation premiums.

We must recognize that it will take the combined power of thousands of small businesses across our nation to rescue us from this meltdown, not the big boys.  The problem for the Washington establishment is that it is very difficult for the federal government to get its very “large hands” around all the thousands of small businesses that employ 100 or fewer employees. Yet they are the ones on the battlefield every day slaying the economic dragons wrought by the giants of Wall Street. Call it Main Street. Call it whatever you like, but the fact remains small businesses are the critical element to our national and international recovery.

So we advocate Congress and the President declare a simple moratorium on the taxes of owners of small businesses operating as sole proprietorships or sub-chapter S corporations who use funds from their life insurance policies, 401(k) accounts, IRA accounts, personal savings accounts, or any other similar account that provides cash for the continuance of the business and allows the business to survive, making payrolls, employee contributions to employee 401(k) (or similar) accounts, or pay vendors. No bailout. This, it seems to us, makes more financial sense than the billions of dollars in bailouts being approved for the giants of Wall Street. The impact of this on the federal budget will be negligible, a tiny fraction of the billions required to bail out the giants.

We see this need for the tax year 2008, 2009, and possibly 2010. After that, we hope the need disappears and the economy returns to “normalcy.”

This proposal requires speedy action as many of the small businesses in cities across America will be adding to the bankruptcy filings, and their employees will swell the ranks of the unemployed. This can’t be that difficult to comprehend, but it will require will, persistence and common sense. No one represents the interests of small business in Washington, at least not any significant groups. So Congress will need to listen to common sense.

Immediate action will send a resounding signal to the financial markets that there is a plan that is constructive, measurable, does not disrupt the free market place, does not materially impact the federal treasury, and does not have to be permanent. And it will help stabilize this economy.

Similar ideas have been crafted for individual retirement account holders, but if those account holders have no jobs, all remedial plans and programs are doomed.

Franklin Roosevelt in his inaugural speech in 1933 said, “All we have to fear is fear itself.” That is just as true today. He was willing to experiment, explore, listen, act and be pragmatic. Some programs worked, others did not. President-elect Barack Obama would be wise to heed that wisdom and utter those exact same words in his inaugural.

A tax moratorium for small business owners is a very pragmatic approach. It needs to be acted on quickly so loud signals can go forth to the business community (Main Street) that the federal government is now using common sense to resolve a potentially explosive issue.

Clearly this is not a partisan proposal; it does not embrace any ideology. It is neither liberal nor conservative. It is simply a common sense solution to one problem brought on by the Wall Street meltdown that has affected nearly every Main Street business. It is a clear, decisive, and effective use of a simple concept to achieve a greater good in an efficient manner. It will save jobs and save the many small businesses which are the life blood of this country.

Since no one in Washington has really shown much respect for the U.S taxpayer and the many small business owners and employees trying to cope, we believe Congress should also demand a “loan activity“ report from every bank and financial institution that received, or is about to receive, any amount of bailout money.

Simply mandate that each bank MUST loan out approximately 10 percent more each month than the previous month until all $700 billion dollars have been expended. Banks routinely collect that information so it would be no burden on the industry and would be transparent.

Spending that amount could take longer than one might think. This would also lend oversight to the huge amounts of bail money being issued to this industry.

Congress and the President, please act and act swiftly.

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