Archived: State of Small Business


We have looked at the state of small business in California and our union, and it is not good.

Our Small Business Economic Trends monthly report, which has tracked small business conditions for more than 35 years, shows that small business owners in the (once) Golden State and nationwide are struggling to keep their doors open. Optimism among small business owners declined in the latest report as small business owners experienced weak sales and negative earnings.

In addition, capital spending is sitting on the sidelines. Plans to make capital expenditures over the next few months are near the 35-year record low, as is the demand for credit to finance such projects.

And small business owners continue to cut more jobs than they create, a trend that must be reversed in order for our economy to start thriving again. To put the current conditions in perspective, the numbers we’re seeing now are lower than they were in the 1981-82 recession, and have been that way for many more months.

The fact that the Obama administration is considering extending the 2001 and 2003 tax rates is a welcome step in the right direction. Raising taxes is never a good idea when the economy is trying to recover from a recession. Furthermore, the vast majority of small business owners pay their taxes at the individual level so allowing the 2001 and 2003 lower tax rates to stay in place will benefit those businesses. It will also give small business some sense of certainty they can depend on as they make critical decisions about expanding their business.

Seventy-five percent of small business owners think that now is not a good time to expand their business. And when asked what is the most important reason influencing their plans for expansion, political climate ranks second with only economic conditions receiving more votes.

There is uncertainty over how numerous legislative initiatives from Sacramento and Washington will impact the cost of running a business, causing too many small business owners to conclude that they just can’t afford to take the risk to expand their business or hire new employees. If our elected leaders want small business owners to resume their traditional role as our state’s and nation’s job creators, they must realize that uncertainty over their legislative agenda is impeding job growth. They must recognize that incentives and flexibility in an unfettered marketplace, not new and unanticipated mandates and costs, will help small employers and their employees out of the financial hole they are in and restore their hope and opportunity for economic stability.

We sincerely hope that the Obama administration keeps in the budget released this week a permanent extension of the 2001 and 2003 tax rates. We urge Congress to pass a budget that includes the lower tax rates. This would ensure that small business owners can adequately plan for the future and keep more of their own money to invest in their businesses. We plead with Governor Schwarzenegger and legislators to do everything they can to stop the hemorrhaging of regulations, mandates and new taxes that continue to force more and more Californians to the unemployment line and businesses to Nevada and Texas.

Uncertainty is the enemy of economic growth. If our state and federal leaders truly want to help small businesses, they should alleviate small business owners’ fears over taxes as well as job-threatening cap-and-trade regulations, government-run health care, and card-check legislation, which should be eliminated from any legislative agenda in Sacramento and Washington.

Only by creating a climate in which entrepreneurs have confidence in California’s and America’s direction will we be able to turn this economy back down the path to growth and prosperity.

John Kabateck is the executive director of the National Federation of Independent Business’, NFIB/CA a nonprofit small business association, with offices in Washington, D.C. and all 50 state capitals. More information about NFIB is available online at

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