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The Republican “Pledge to America” was not broken

The problem with politics is that when making a certain point, people often invariably leave very pertinent points out. (Career politicians will intentionally leave contrary points out.) One blogger I came across posted an article about how the GOP needed only four hours to violate their “Pledge to America.”

The article he seeded clearly states the GOP, save one representative, unanimously voted against $12 billion in tax cuts for small businesses.

This is a damning statement purely based on face value. However, please note we are playing politics here. So, something has got to be missing from the overall context of this news event. The problem with the article is that it did not go into great detail about all of the other things that have been included in the bill.

So, the automatic question most reasonable people would have is this: What is in the bill?

Title I: Small Business Lending Fund - (Sec. 103) Establishes in the Treasury the Small Business Lending Fund, administered by the Secretary of the Treasury to cover purchases of preferred stock and other financial instruments from eligible institutions (Small Business Lending Fund Program). Limits the aggregate amount of purchases to $30 billion.

So, the federal government is going to establish yet another federal fund spending American taxpayer dollars. (Can we say TARP-lite? Or would this be another bailout? I am losing track of which term would apply since they have done this so frequently; despite statements to the contrary.)This time they are trying to jump start small business. As all politicians do, they provided the typical platitudes such as:

“Our small businesses remain the job creation engine of our country,” House Majority Leader Steny Hoyer (D., Md.) said at a press conference before the vote occurred.

So, what is the new, should I call it a stimulus, fund supposed to do?

The centerpiece of the bill is the creation of a $30 billion lending facility that would direct taxpayer money to regional banks on the condition they lend it out to small businesses.

Requires each institution receiving a capital investment under the Program to: (1) issue a quarterly report detailing new loans to small businesses; and (2) state on its Internet website that, as a participant in the Program, it is seeking to make small business loans to qualified borrowers and may not discriminate on the basis of any factor prohibited under the Equal Credit Opportunity Act, including race, color, religion, national origin, sex, marital status, or age.

So, the stimulus, TARP-lite, bailout of small business requires community banks to loan money to small businesses. Can someone please remind me how all of this government spending has worked out so far?

  • Job creation– Nope, we’re still at 9.6% unemployment.
  • Shoevel ready projects– Nope, most of the money from the stimulus still hasn’t been spent
  • Bailouts of industry– The total amount of bailouts are already over $1 trillion; with a worst case scenario adding another $1 trillion to the total. 

So, is another lending fund really going to help? Or could it be an example of irresponsible spending by the federal government? Or…

“It won’t do any good. Business doesn’t need credit – business needs customers,” said Jade West, a lobbyist for the GOP-leaning National Association of Wholesaler-Distributors. “If they don’t have a customer base because demand is down, they’re not going to borrow because there is nothing for them to borrow for.”

Politics aside, the statement is accurate. Why borrow money if I have no customers to sell to? Please note the federal government expects the loans to be repaid.

Directs the Secretary to prescribe eligibility criteria to determine the financial ability of a CDLF to participate in the Program and repay the investment.

Sets a 10-year deadline for repayment of a capital investment under the Program.

So, this idea is not a common sense approach to solving the issue. That would be a reason for opposing the bill which is part of the Republicans “Pledge to America.” Businesses will not spend money if they can not make money. Otherwise, they will lose money and go out of business. Just to prove my point:

Title VIII: Small Business Borrower Assistance Program – Small Business Assistance Fund Act of 2010 – (Sec. 801) Directs the SBA Administrator to implement a Small Business Borrower Assistance Program providing payments to lenders of principal and interest on qualifying guaranteed small business loans of up to $300,000. Requires automatic enrollment in the Program of each borrower receiving a qualifying small business loan, unless the borrower opts out.

So, the federal government is giving the money to small business and automatically enrolls them into a program where the federal government will pay the loans back on behalf of the borrower.

What else is in the bill aimed at small businesses?

Allows eligible institutions with assets of $1 billion or less to apply for a capital investment from the Fund not exceeding 5% percent of risk-weighted assets. Allows eligible institutions with assets of between $1 billion and $10 billion to apply for a capital investment from the Fund of up to 3% percent of risk-weighted assets.

What? I thought this was for small businesses. Businesses with up to $10 billion in assets can get these loans. Let’s talk about irresponsibility. Moving on. 

Title II: State Small Business Credit Initiative – State Small Business Credit Initiative Act of 2010 – (Sec. 203) Establishes a seven-year State Small Business Credit Initiative (Initiative), administered by the Secretary to allocate federal funds for FY2009-FY2010 to participating states with capital access programs.

So, states can get some of this money. Didn’t they already get billions from previous bailouts? What gives? Oh, more random spending by the Obama Administration.

Any other pearls of wisdom in this stimulus, TARP-lite bailout of a bill?

Title III – Small Business Early-Stage Investment Program

Another government program, why am I not surprised?

This program requires a participating investment company to convey an equity financing interest to the Administrator, entitling the Administrator to a pro rata portion of any distributions by the participating investment company equal to the percentage of capital in the participating investment company that the equity financing constitutes.

Is it me or does this mean the government is required to get a piece of the pie?

Permits program participation by any existing or newly formed incorporated body, limited liability company, or limited partnership organized under federal or state law for the purpose of performing the functions and conducting the activities contemplated under such program, and any manager of a small business investment company.

So, an investment company can’t participate in this program, but the Administrator is entitiled to a pro rata portion of disbursement. Seems like they just contradicted themselves. So, if an investment company can’t participate, then who’s going to invest in new small businesses?

So, the Republicans are opposing another government program that doesn’t make sense.

 

So, how is this going to be paid for?

Title IV: Miscellaneous - States that the budgetary effects of this Act, for compliance with the Statutory Pay-As-You-Go Act of 2010, shall be determined by reference to the latest statement titled “Budgetary Effects of PAYGO Legislation” for this Act, provided that such statement has been submitted prior to the vote on passage.

So, that means if a statement wasn’t submitted, then PAYGO doesn’t apply. So, the Republicans opposed an unfunded mandate. This program runs up another $30 billion in debt.

I would be amiss if I didn’t mention the tax cuts that the other blogger’s article focused on. Yes, it is in there,

(Sec. 501) Amends the Internal Revenue Code to increase from 50% to 100% the exclusion from gross income of the gain from the sale or exchange of qualified small business stock acquired after March 15, 2010, and before January 1, 2012.

And exactly who is supposed to have this money to acquire stock? Please note that this “cut” is short-term. We’re for working families, but you will only get a tax “cut” for the next 15 months. Just to illustrate my point:

(Sec. 521) Increases the tax deduction for trade or business start-up expenditures from $5,000 to $20,000 in 2010 and 2011.

So much for working families…but wait for it….wait!!

(Sec. 533) Increases by 7.75% the estimated tax installment for the third quarter of 2015 for corporations with assets of not less than $1 billion.

So, start a business now and the Obama Administration will raise your taxes later. Do you wonder why the Republicans would oppose this bill? Even the one part they liked came with a catch.

The bill is a disaster anf the “Pledge to America” was not broken.

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