A Real Small Business Assist


In his 45-minute lecture/speech in Cleveland last week — which mostly consisted of blaming his predecessors for the state of the economy and trying to turn House GOP leader John Boehner into a Gingrich-like bogeymen — President Obama once again touted the Democrats’ “small business jobs” bill pending in the Senate and blasted Republican opposition. The president exclaimed: “In fact, if the Republican leadership in Congress really wants to help small businesses, they’ll stop using legislative maneuvers to block an up or down vote on a small business jobs bill that’s before the Senate right now. Right now”

In actual fact, though, if Obama really wanted to help small business, he would instruct Senate Majority Leader Harry Reid to stop using “legislative maneuvers” to block “up or down” votes on amendments that, unlike the underlying bill, would actually ease the burden of the majority of small businesses. Dozens of amendments have been proposed to the “Small Business Jobs And Credit Act” that would help small entrepreneurs by providing regulatory and tax relief.

These include amendments providing a reprieve from the looming tax hikes scheduled to hit many small business owners at the end of this year when the Bush tax cuts expire, and a bipartisan measure that would lift an arbitrary government cap on the amount of loans that credit unions can lend to businesses.

Reid now appears to be willing to allow a vote this week on a measure by Mike Johans (R-Neb.) to repeal a costly and intrusive measure in Obamacare that requires businesses to file IRS 1099 reports on any purchase $600 and over. But he is still refusing to let any of the other amendments come to Senate floor, saying that they are not “germane” to the bill.

And indeed, actually providing relief to entrepreneurs from the government’s burdens may not be “germane” to a bill that purports to help small business by setting up a $30 billion big-government “small business lending fund” — what National Review writer Stephen Spruiell has called “Son of TARP” — in which the U.S. Treasury buys up stakes in banks and directs them to lend to small business with an emphasis on “linguistically and culturally appropriate outreach.” As Spruiell writes, “this is the kind of politicized bank lending that the government has encouraged for decades through laws such as the Community Reinvestment Act and through mandates requiring Fannie Mae and Freddie Mac to promote homeownership [that] actively drove the deterioration of lending standards that led to the bust.”

But if Congress’s objective in crafting this horrific bill was making credit more available to small business, why won’t Reid bring to the floor an amendment that would simply allow a segment of financial institutions to make loans available to small business without any government subsidies or prodding? An amendment that, though it has bipartisan support from prominent conservative Republicans, is sponsored by one of the more liberal members of Reid’s own party.

In July, Sen. Mark Udall (D-Colo.) introduced an amendment to the bill that would raise the government’s current cap on the amount of business loans credit unions can make from 12.25 percent to 27.5 percent of a credit union’s assets. The measure does not change the safety and soundness requirements credit unions must adhere to and in fact introduces new criteria they must meet to show financial strength. And prior to 1998, when bank lobbyists succeeded in getting Congress to put the 12.25 percent cap in place to halt competition, credit unions did not face any cap on the amount of business loans they could make to their members.

The Credit Union National Association has estimated that the measure would create billions in new loans and more than 100,000 jobs in its first year of enactment, and it has been endorsed by trade groups from the National Association of Manufacturers to the National Association of Realtors as a way to make business credit more available.

But though both Reid and the Obama administration initially expressed support for the measure, they have since hemmed and hawed about whether the amendment would be allowed a vote. According to a story by Credit Union Times reporter Claude Marx, “it’s not clear how high a priority [the administration] is placing on including it in the final bill,” and Reid had “told backers that he wouldn’t bring it up unless they could guarantee at least 60 votes.”

This reluctance of Reid and Obama to support this sensible no-cost measure to boost small business lending — probably at the behest of banking associations that fear the competition — presents an opportunity for Republicans to show they are on the side of small entrepreneurs. Already in the House, solid conservatives and tea party favorites such as Ron Paul (R-Texas), Virginia Foxx (R-N.C.), Dan Burton (R-Ind.), and Dana Rohrabacher (R-Calif.) have co-sponsored similar legislation boosting the business lending cap for credit unions. More GOP senators should follow suit and insist on Udall’s amendment coming to a vote, as well as the measures to restore the Bush tax cuts.

Politically, the biggest advantage Republicans have in supporting the credit union amendment is that they can credibly accuse Reid and Obama of a charge that has often (and most of the time, wrongly) been leveled against them: that of “siding with the banks.”

Bank lobbyists have been ferociously opposing any increase in the credit union business lending cap that would give more borrowing options to small businesses. They complain of “unfair subsidies” to the credit unions. An “action alert” of the American Bankers Association warns about “the expansion on unfair credit union competition in business lending.” The alert intones, “Credit unions were given a tax exemption to serve people of modest means, not to aggressively go after business loans.”

But it’s a bit rich for the banking industry, which has received more than $700 billion from TARP and is lobbying for billions more in the current bill, to complain about unfair subsidization. Yes, credit unions have an exemption from taxation at the corporate level because they are member-owned cooperatives that don’t have the many means that banks have to raise money such as the issuance of shares of stock.

Credit union members are fully taxed on the dividends on their accounts (which are really interest payments on their accounts, and are taxed at the “ordinary income” rate for interest and not the lower rate for dividends). Conservatives have long argued that business income should only be taxed once, and credit unions provide a successful example of single taxation. They should also argue for expanding this structure, rather than for unduly restricting credit union activity simply because the tax system for all businesses hasn’t yet been reformed.

One conservative who was a fan of credit unions was Ronald Reagan. In Presidential Proclamation 5211in 1984, Reagan said: “Credit unions are uniquely democratic economic organizations, founded on the principle that persons of good character and modest means, joining together in cooperative spirit and action, can promote thrift, create a source of credit for productive purposes, and build a better standard of living for themselves. Because credit unions exemplify the traditional American values of thrift, self-help and voluntarism, they have carved a special place for themselves among the Nation’s financial institutions.”

Through his chairman of the National Credit Union Administration, Edgar Callahan, Reagan lifted barriers to credit union modernization, such as allowing credit unions with different fields of memberships to merge. Upon Reagan’s death in 2004, an article from the website CreditUnions.com stated that “the Reagan legacy means that individuals can choose a cooperative form of financial services in most communities today.”

So this week, GOP senators have two unique opportunities: to unite in opposition to a big-government bill that would set up a tax-subsidized and politically directed “small business lending fund,” and to unite in support of a bipartisan but Reaganesque amendment that would liberalize financial institutions to serve small business needs. Neither opportunity should be wasted.