SMALL BUSINESS: Stimulus plan largely skips the little guys

New York —- The government’s economic stimulus plan doesn’t include many provisions that directly benefit small businesses, but economists say those companies are more likely to find a cure for their financial ills closer to home —- with their own customers.

The plan does extend two provisions of 2008’s economic stimulus bill that allow small businesses to take a bigger upfront deduction for the cost of new equipment. But companies whose sales are hurting may be reluctant to make big expenditures, putting those tax breaks out of reach.

“There’s not a lot in the stimulus plan that will put cash in the hands of people who will deliver it to the front door in the form of sales,” said William Dunkelberg, chief economist with the National Federation of Independent Business, a Washington-based small-business advocacy group.

‘We need incentives’

Raymond Keating, chief economist with the Small Business & Entrepreneurship Council, also doubts the plan will give small companies much help.

“I think we clearly need a different type of package,” said Keating, whose Washington-based group also advocates for small business. “We need incentives in the private sector for people to take risks and expand business. Unfortunately, there’s very little of that in this package.”

The package continues the Section 179 deduction, which was doubled in 2008 to $250,000 from $125,000. The deduction allows small businesses to deduct upfront the entire cost of equipment such as computers, furniture, vehicles and manufacturing machinery.

The bill also extends bonus depreciation, which gives businesses of all sizes a more substantial first-year deduction than traditional depreciation rules have allowed.

But companies across the country have been cutting back their capital spending, unwilling to make big commitments or unable to get financing. That means the tax deductions aren’t likely to help as many companies as the government had hoped.

Economists say the natural return of consumer and business spending as the economic cycle continues is more likely to help small companies. “The best thing to happen to small business is if customers come in,” Dunkelberg said.

Dunkelberg said a big problem in the economy now is that “the guy whose job is not at risk has been scared into not spending.” When those consumers and businesses release pent-up demand, the recession’s grip on the country may ease.

Keating expects businesses to be the catalyst. “Consumers are followers; as long as business is investing, expanding and creating jobs, consumers are quite happy and are going to keep spending,” he said.

But economists say the recovery is likely to be uneven, with some industries or companies within industries ahead of the pack while others lag.

“I think it’s going to be a very much case-by-case situation,” Keating said. “Companies that come up with the innovations that get consumers excited, or the cost savings that get consumers in the door are going to benefit.”

Still pushing for changes

In the meantime, small-business advocates plan to keep lobbying for legislation they believe will provide a bigger boost for the economy.

Bill Rys, tax counsel for the National Federation of Independent Business, said his organization wants to see the government extend the Section 179 and bonus depreciation provisions into 2010, and for that decision to be made this year.

“We’re not going to see a recovery in the immediate term,” Rys said. “The incentive to spend is not going to be there until the end of the year, and you may want to wait till next year before you spend.”

The NFIB also would like to see the Section 179 deduction expanded to include equipment that currently doesn’t qualify for the tax benefit, such as heating and ventilation systems and building construction. That change, Rys said, would benefit the construction industry as well as small businesses.

The organization also wants the tax deduction for a new company’s startup costs doubled, to $10,000 from its current $5,000. Rys said many people being laid off will be starting their own companies and could use a bigger break on their taxes.

The NFIB has also been campaigning for the government to suspend payroll taxes —- employees’ and employers’ contributions to the Social Security system —- for six months. That, the group believes, would put more money into consumers’ hands and make them feel more comfortable about spending.