It has become clear to me that Democrats still do not know what it takes to encourage a small business to hire and grow.
During the Latino Business Summit in Washington D.C. this week, Democratic members of the Senate touted successfully-passed legislation such as the HIRE Act, which reduced payroll taxes and provided a $1000 tax credit, in order to increase hiring. These Democrats must have never owned a business.
All in all, it costs, on average, 1.5-2 year’s salary to hire a new employee. A few thousand dollars is a drop in the bucket and will not affect most business owners’ decision to hire.
Speakers also promoted programs that will increase access to capital as well as contracting and procurement opportunities. Again, Democrats prove they do not get it.
Although most businesses claim that access to capital is their number one reason for not growing, the truth is the number one reason they don’t grow is for a lack of business (most small businesses looking for capital, want to invest in marketing). Capital is out there and, frankly, it’s prevalent if you have a business model that works.
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I am often contacted by investor groups who want to find businesses worth investing in. What’s the catch? They want to see profits and the potential for significant future growth. Unfortunately, these greedy investors want to be sure they get a long-term return on their money.
All of the other programs mentioned during the summit involved federal contracting and procurement opportunities. Opportunities to work with the federal government are great, if you work or plan to work with the federal government. The majority of American businesses do not.
More than 10 prominent Senate Democrats provided remarks that included promoting the President’s American Jobs Act. Among the benefits to the Act is a 50% reduction in payroll tax for both employers and employees through the coming year as well as relatively small tax credit incentives for the “long-term” unemployed and veterans.
Veterans deserve all the help we can offer. But, for the same reasons I mentioned above, these incentives will not be enough to encourage substantial business growth.
So, as a small business owner, what will make me hire a new employee?
First, reduce the bureaucratic process required to open a business. I recently turned down an opportunity to develop a business in an economically impoverished location because the average length of time it would have taken to cut through the red tape was five years. No thanks, I’ll take my business elsewhere.
Secondly, guarantee my future tax rate and keep it low. Yeah, this is the Republican mantra. But it will work.
While putting together a five-year pro forma for my business plan (which every investor requires, at a minimum) I have to figure out what my profits will be. Democrats are always discussing how to raise my business and personal taxes, which increases the risk that my projection will not be accurate. This not only concerns my potential investors, but it scares me as well.
Republicans, on the other hand, are “threatening” to lower my taxes. Even if I were guaranteed a tax rate that is level and clear over the next five years, I would be much more willing to invest, expand, and hire.
Why do Democrats have such a hard time understanding what drives a small business to hire and grow? No one really knows. But perhaps it doesn’t help that among the nearly 40 small business owners in Congress (excluding professional practices such as doctors and lawyers), according to the New York Times, only a couple are Democrats. Only one is a democratic senator.
As the old saying goes, “it takes one to know one.” Perhaps democratic senators will need a few more than just one, before they begin to understand what will really make a small business hire.
Justin Vélez-Hagan is the National Executive Director of The National Puerto Rican Chamber of Commerce, and an international developer of senior living facilities. Justin is also a contributing writer for Politic365 and a member of the U.S. Air Force Reserve. He can be reached at JustinV@NPRChamber.org or @JVelezHagan.