Check out this new article at CNNMoney titled "Manufacturers to banks: We need money now". They might as well have ended that title with an exclamation point:
NEW YORK (CNNMoney) -- American manufacturers say business is booming again, but many are complaining that banks aren't lending them money to ramp up production.
In a new quarterly survey of small to mid-sized manufacturers, 26% of 268 respondents cited "lack of capital to grow" as their biggest challenge at a time when they need loans to hire more workers, buy new equipment and aggressively market themselves.
Here's an example: Matt Henderson, an Alabama business owner, says that his business is "booming" and that his current 30 employees are working six and seven days a week to fill demand. He'd love to get a loan to expand and hire five new employees (3 full-time, 2 part-time), purchase more equipment and ramp up his marketing. Mr. Henderson went to the bank for the loan, and here's what happened:
His former bank, Bank of America, denied him the loan. His new bank, Regional Finance, offered one, but it'd come with a 6% to 7% interest rate and require a personal guarantee, meaning that Henderson would have to put his own money on the line. Those terms were "unreasonable" to him.
Unreasonable? Ya think?
My point here isn't to bash the banks for being too tight with their credit. I don't know enough, frankly, about the process of loan-making and what's going on out there to really say that the banks are "right" or "wrong" to be making it so hard for businesses to get loans. Read the whole article, it's fascinating.
My point here is to refute the ridiculous Republican idea out there that small businesses' decision to hire more employees will be affected by whether Congress and the President decide to extend the Bush tax cuts on income earned over $250,000 per year. Even George W. Bush himself recently emerged to tell that tale again:
Most people don’t realize that small businesses create about 70 percent of new jobs and that these businesses often pay income taxes at the individual rate, Bush says.
Bush added, "If you raise taxes on the so-called rich, you’re really taxing job creators."
Of course, this is completely, well, wrong.:
Proponents of extending President Bush’s 2001 and 2003 tax cuts for people with incomes over $250,000 argue, in part, that allowing them to expire after 2010 would weaken the economy by hurting small businesses. In reality, however, extending the tax cuts would do little for small business because only the top 3 percent of people with any business income, let alone income from a small business, would benefit.
The
CNNMoney article I cited at the beginning of this post about businesses having a hard time getting reasonable loans provides real evidence of why, even with demand rising, companies aren't hiring like they should be able to. But the other, underlying point is that the reason they want to hire is because DEMAND IS UP. Job growth is driven by demand, which is why in a depression or recession, government spending is required to stoke demand. Yes, Keynes was right.
It is ludicrous to think that a small business that has the money to do so and the customer demand to fill would NOT hire more employees because they are a) the type of business that has to pay individual income taxes (Republicans have long exaggerated the number of businesses that fall under this category), b) the business makes a profit of more than $250,000 this year, and c) because the tax on their net profit above $250,000 is going to go up by 4.5%.
To put it more simply, show me the business owner who thinks this way:
Hmmm. I could sell more products (because my current staffing can't fill customer demand) and thus make more profits if I hire more people. But, nah, I'm not going to because an extra 4.5% of that profit is going to be taxed.
Despite what George Bush, or John Boehner, or Mitt Romney and his fellow Republicans might say, such a business owner is as fictional as
Harry and Louise. It's our job to make sure the American people understand that.
7:37 AM PT: Recommended list!: Thanks for reading, everyone.
8:01 AM PT: From the comments, h/t newfie, is a corollary to my fictional business owner's statement above: "If I had an extra 4.5% I would go out and hire people despite the lack of customers because... gee? what else would I do with extra money but give it away?"
So this magical 4.5% either prevents business owners from expanding in good times or allows them to expand in bad times. If that is what models good business then I am in the wrong business.