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President Barack Obama is expected to sign a long-delayed bill into law today that will help struggling small businesses by increasing financial support and enhancing cash flow through loans and tax incentives.
According to some experts, the legislation could have a far-reaching impact on Maine’s economy.
The bill was designed to help small businesses hire new employees, increase inventories and strengthen payroll. It comes at a time when Maine’s unemployment rate stands at 8 percent and the state’s economy has experienced lethargic growth over the last year.
Republicans, reluctant to spend, have held up the bill in Congress for months. The Senate passed the measure last week and the House followed its lead on Thursday, mostly along party lines, with a 237-187 vote.
Among the many provisions included in the legislation, the more than $40 billion bill will create a $30 billion lending fund that will allow the treasury to buy preferred shares in community banks. The fund will help to make more loans available to small businesses. It will also cut taxes for small businesses by $12 billion over the coming decade.
According to UMaine Cooperative Extension specialist and professor of economics Jim McConnon, Maine stands a chance to benefit greatly from the legislation because most of the state’s banks are considered community banks—those with $10 million or less in assets.
“Even during good economic times it can be difficult to obtain financing. Maine is a major small business state with close to 95 percent of businesses employing under 50 people, and there are at least 110,000 people who are self-employed,” he said. “By having this kind of financing available, for now, the legislation could help keep jobs that might be lost and help spur growth, which is something we haven’t seen a lot of lately, by simply helping to maintain things and by keeping money in the pockets of small business.”
In addition to the lending fund, the bill extends a 2008 stimulus provision by cutting fees and increasing limits on loan guarantees offered by the Small Business Administration. It reinstates, through 2010, provisions increasing to 90 percent the share of loans the administration insures and waives fees that can total more than $56,000 on a $2 million loan.
“Typically, small businesses don’t need a whole lot of money. These types of things are significant in spurring a company’s ability to grow. A little goes a long way,” McConnon said.
Tax incentives included in the legislation provide small businesses with an opportunity to take advantage of a process called bonus depreciation, which allows companies to more quickly write off the cost of purchases. The bill will also help investment by allowing companies to forgo having to claim a capital gains tax on their return.
Other highlights of the bill enable small business owners to deduct the costs of health insurance for themselves and their families from self-employment taxes in the 2010 tax year. The measure would also help start up businesses by creating a $10,000 deduction, instead of the $5,000 deduction established by the stimulus package.
Through a combination of loans, tax incentives and stimulus provisions, Democrats are attempting to show voters they are working to improve the economy. As President Obama prepares to sign the bill into law, it offers his party a minor victory during a midterm election wherein Democrats have often been criticized for not doing enough to bolster the economy.
Maine Republican senators Olympia Snowe and Susan Collins voted against the bill. Democratic Maine House representatives Chellie Pingree and Mike Michaud voted for it.
Pingree said on Thursday the bill combines tax relief with increased access to financing so the nation’s small businesses can move forward with new or planned expansion.
“Small business growth means job creation,” she said.
Meanwhile, with Republicans poised for big gains in the midterm elections, they claim parts of the bill, such as the lending fund, are just other versions of the unpopular 2008 bailout of the financial system. Some have said banks have plenty of money to lend, but loan demand is way down.
McConnon said he didn’t know how many small businesses would take advantage of the bill, but he put forth the idea that the stimulus package did help lending. He “assumed that there could be pent-up demand for loans.”
McConnon’s assumption was supported by Moe Dube, director of the Small Business Administration in Augusta.
“Given that the incentives offered in this bill are four times that of the ones included in the Troubled Assets Relief Program (a part of the 2008 stimulus package, commonly known as TARP), and we do in fact know that TARP helped to spur lending in Maine,” he said. “The new bill could help to propel Maine to unbelievable levels of growth, but this is something we’ll know for sure as the bill begins to take effect.”
The bill will be the fourth major jobs bill to pass Congress this year. Previous legislation included a payroll tax credit for new hires, aid to state government to prevent layoffs and extended unemployment benefits.
“Previous recovery measures of this nature had a positive effect even in the darkest days of the economic downturn,” Dube said. “So yes, as of right now we anticipate the bill will have a huge impact on the state of Maine.”
Bangor Daily News