Small Business Committee

Testimony by ASBA Member Charles M. Lauster

My name is Charles Lauster, and I am an architect and member of the American Small Business Alliance. My partner and I run a small firm of twelve people in New York City. We have been in business since 1983. Since then we have seen a number of economic ups and downs and one war. We have never seen circumstances, however, quite like those we see today - a recession, a war and a nation holding its breadth. Stimulus for small business is certainly needed. But it has to be the right stimulus. I would like to review those actions that the federal government could take that would help businesses like mine and comment on those that would do us no good at all.

What do I mean by a small business? First, a firm that is 300 people or less. Most small businesses are much smaller but even at several hundred, the management can know the names of all or at least most workers and thus has some personal relation with its staff. In terms of operation, a firm of ten people and a firm of 300 are much more similar than either of them is with a company of 10,000. Second, the business is not publicly traded. Capital is the key problem for small business. Meeting payrolls, running the equipment, paying the rent - cash flow is what keeps most small businesses small. This is not to say that small businesses are poor. They can, in fact, make people rich. However, capitalization almost always comes out of the owners' pockets. You may have had a great year, but if receivables were high for six months, it was probably a year of scrambling for cash.

So what can the Federal Government do to stimulate small business? There is a lot of discussion on cutting the tax rates further. This makes sense to small business if it puts substantially more money in the hands of masses of consumers, the main market for small businesses. Big cuts for the higher bracket tax payers puts money into investments and not into the markets small business needs. There is a down side to simple rate cuts. As federal, state and local governments cut their revenues they cut services and capital projects. Government is an important customer for local small businesses and deficits mean lost contracts.

It also means the environment in which we do business deteriorates. Again the issue is capital. Big business has the money and clout to make the world fit its needs. Health care costs too high? Negotiate with the insurer. Insurers do not negotiate with us. Small business lives in the world its got. If the streets need repaving, it takes longer to make deliveries. There is nothing we can do about it. We rely on good quality of life as provided by government. And that means adequate tax revenue.

For these reasons, capital gains cuts and the cut in the alternate minimum tax are largely harmful to small business. While we gain little from these cuts, the lost revenue means lost quality of life for our business and our lives. The AMT cut was especially galling to small business. No small business is getting several years of taxes back.

Focused stimulus concepts can address real small business needs. Small business loans, tax credits for hiring, support of local efforts to provide manufacturing space and empowerment zones are programs that have worked and can serve as examples for new legislation . These sorts of efforts get contracts and money directly to small businesses, especially if aimed at areas that are particularly hard hit. We also need relief from the spiraling costs of health insurance.

Right now, lower Manhattan is hard hit. The City is struggling to retain businesses, to keep small businesses from closing their doors and to rebuild. There are a lot of good ideas are being advocated. Relocation assistance within the city, employee tax credits and special grants to businesses that stay in the Recovery Zone are a few of them. Simple rate cuts will do nothing to help us in this regard. In fact to the extent that the cuts reduce the city's tax revenue, our suffering will be greater.

So to sum up. Stimulus aimed directly at small business can help. Stimulus that meets big business needs will not help small business much and will probably hurt in terms of lost quality of life. Tax cuts at the highest brackets, capital gains cuts and the AMT are no help at all. Government does not need to stimulate a small business with lots of capital.

Small business is helping America fight back against both the recession and the terrorists. A wise stimulus package can give small business a helping hand without weakening the country. We will all breathe easier.
Thank you