Key legislation a good start, but small business still needs some help
Tuesday, May 29, 2012
Posted by: Rhette Baughman
Small Business Month may not sound like Christmas, but considering where our economy has come from, there certainly is reason to reflect and give thanks.
I write this article as I prepare to depart for Washington to meet with representatives of the National Small Business Association. At the top of the agenda is how Arizona small businesses are leading the nation out of the Great Recession.
When I look back at how this has been accomplished, I see a multitude of factors. If there is one thing good that has come out of the economic downturn, it would be that Arizona has more small businesses per capita than ever before.
A Kauffman Foundation study released in May shows there was a dip in business startups nationwide in 2011. But the study points to the five states with the highest entrepreneurial activity rate, and Arizona is the leader.
When employers stopped hiring, we saw many of the unemployed take matters into their own hands and create their own jobs. For some, it was an opportunity to do something they had always wanted to do. For others, it was a matter of survival.
Sherry Hoskinson, director of the University of Arizona’s McGuire Center for Entrepreneurship, says hard times often spark change. She says disruption is the key to entrepreneurship.
Entrepreneurs, both new and seasoned, will receive some help in the coming months. This year was supposed to be a "lame duck” legislative session, according to Jerry Bustamante, senior vice president of public policy for the Arizona Small Business Association . But Arizona’s business community enjoyed some much-needed wins during this session of the Legislature.
The centerpiece of this year’s legislation was House Bill 2815, which phases in cuts to capital gains.
Arizona has been taxing capital gains as regular income. But with the passage of HB 2815, the tax on capital gains will be reduced by 10 percent, then 20 percent and finally 25 percent, eventually resulting in a 3.4 percent effective tax rate on capital gains, according to Glenn Hamer, president and CEO of the Arizona Chamber of Commerce & Industry.
Another key element of the new law is an extension of the number of years businesses can carry forward a net operating loss for state tax purposes. That period has been changed from five years to 20, aligning the state with the federal government.
HB 2815 also encourages capital investment in the near term by offering bonus depreciation for assets placed in service during 2012. This provision, which piggybacks on existing federal tax policy, is designed to spur economic activity by lessening the tax burden on businesses that purchase equipment this year.
In addition, HB 2815 expands eligibility for an income tax credit that previously was reserved for companies in the renewable energy sector to manufacturers in most other industries. Building on the success of the current tax credit, this expansion will encourage job creation and capital investment in other areas of the manufacturing sector.
These wins are good public policy that will contribute to improving Arizona’s business environment. Lee McPheters, research professor of economics in the W.P. Carey School of Business at Arizona State University , said Arizona lost more than 300,000 jobs to the recession, but has regained 78,000 of them. An additional 48,000 jobs are expected to be added this year.
Along with the strides state government has made, this is all good news. So why aren’t we all dancing in the streets?
While sales and income are gradually increasing among small businesses in general, there is still a significant amount of work to be done to convince the buying public it’s safe to come out now.
Some have referred to the Great Recession as a buyer’s revolution. The days are gone when consumers will accept the status quo. Consumers are becoming much more educated and much more wary about parting with their money.
The market correction also gave birth to a buying correction. America has a "reborn” consumer — more like our grandparents who went through the Great Depression, when stashing money in a mattress was preferable to investing. People are holding on to their vehicles longer before replacing them, remodeling their existing homes instead of "buying up,” and fixing broken appliances rather than replacing them.
We have consumers who want us to prove it is worthwhile for them to spend their money. In the long run, that is good for small business, the consumer and the economic health of our country.
By Rick Murray, Chief Executive Officer for Arizona Small Business Association
Source: Phoenix Business Journal