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American Jobs Act Will Benefit Small Businesses

Fiscal expansion and economic multipliers are effective in creating jobs above and beyond those directly created by one firm or one government project.

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The federal government has a role to play in helping small businesses grow and thrive. In the past, government investments in new, innovative businesses helped many companies grow into household names. Three big cases in point: The Small Business Investment Company program, financed by the federal Small Business Administration, helped Nike Inc., Apple Inc., and FedEx Corp. grow into the global business powerhouses they are today.

And in times of labor market weakness, presidents and Congresses of all political stripes—including the Bush administration—have embraced short-term, temporary fiscal expansion to boost sales and lead to job creation. These kinds of policies help support the sales of small businesses across America.

We know these policies work as intended. An empirically grounded body of literature documents the effectiveness of fiscal expansion and the importance of economic multipliers—how a dollar spent by the government can create more than a buck in terms of economic output—in creating jobs above and beyond those directly created by one firm or one government project.

That’s why President Obama’s American Jobs Act includes a number of key proposals specifically targeted at small businesses. Specifically, the proposed legislation includes tax cuts aimed at helping small businesses hire and invest. If enacted, the law will cut in half firms’ payroll taxes on the first $5 million, and will provide a complete payroll tax holiday for employers who create new jobs or increase wages, capped at the first $50 million in new wages. The American Jobs Act will also extend 100 percent business expensing through 2012.

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