New businesses under one year old, including both self-employed and incorporated enterprises, have produced an average of 3 million net new jobs annually during that period of time, more than all those created by older businesses combined, according to recent reports from the National Bureau of Economic Research and the Ewing Marion Kauffman Foundation.
Through opportunity and often necessity, these entrepreneurs are carving out entrepreneurial niches for themselves. They are childcare providers, landscapers, graphic designers, builders, caterers, pet sitters and home cleaners.
However, at a time when our country is most in need of the innovations and talent they bring to the marketplace, the sputtering economy has slowed the number of jobs produced by these new businesses to 30-year lows.
The President’s jobs bill is a forceful response to the problem. It recognizes that current policies too often penalize business formation and takes creative steps to address this:
• By cutting payroll taxes in half to 6.2 percent, it offers an important break to the self-employed who must pay both the employer and employee share of Social Security taxes, as well as back taxes and penalties impossible to foresee when you’re just starting out.
• It allows the self-employed to continue to collect the unemployment insurance they were entitled to before they went into business for themselves, acknowledging that few new business owners have the ability to support themselves at the out-set.
• It provides explicit support for self-employment training programs for the unemployed.
These provisions alone could add hundreds of thousands of jobs to the American economy over the next few years. Moreover, the new business opportunities they spur would be accessible to those who need them most. Despite Republican allegations to the contrary, new business entrepreneurs are not among the wealthiest 2 percent of Americans, but are a mix of color, age, abilities and disabilities, rural and urban residents. And many are barely scraping by.
The American Jobs Act is an important first step toward eliminating barriers to new business creation. But we should not stop there. We should expand on the bill’s provisions and continue to invest in the diverse genius of the American people by:
Creating a “Self Employment Tax Credit” that permanently expands the payroll tax cut for new businesses, providing a one-year payroll tax holiday followed by one year at the lower 6.2 percent rate provided in the jobs bill.
Enabling and encouraging would-be entrepreneurs to save for their ventures by making the Saver’s Credit refundable and available for business creation. Most new businesses are financed out of personal savings and the savings of family, friends and associates. (Lack of savings is one of the most likely causes for depressed new business formation rates.)
Allowing beneficiaries of all public support programs, from welfare to unemployment compensation to Social Security, to pursue self-employment without abruptly losing benefits.
The ideas unleashed in the President’s jobs act have the potential to set our country on a policy path that will lead to millions of new businesses and jobs. That kind of policy innovation doesn’t come along every day. It deserves our attention, our appreciation, and, most importantly, our support.
Robert Friedman, is founder and chair of the Corporation for Enterprise Development (CFED), a private nonprofit organization focused on building assets and expanding economic opportunity for low-income people and disadvantaged communities.