Stimulating The Economy

U.S. Chamber's Competitiveness Agenda—A Series

Chamber Pushes Tax Relief, Targeted Assistance

In January, we outlined the 11 policy areas on which the U.S. Chamber will focus this year and beyond to sharpen America's competitiveness. Beginning this month and ending in December, we will take a closer look at each of the 11 competitiveness issues, starting with the Chamber's highest priority—stimulating the struggling economy.

The Challenge—Business At Risk

The United States is in the midst of a severe recession and its worst financial crisis since the Great Depression. Some 2.6 million Americans lost their jobs in 2008—the most job losses since 1945—and unemployment finished the year at 7.2%. About $7 trillion in shareholder wealth disappeared. In December, consumer confidence hit an all-time low. Major industries have been severely challenged. Some are struggling to survive. A number of long-established businesses have simply ceased to exist.

The housing market collapse and subsequent credit crunch have made it increasingly difficult for businesses large and small to access the credit they need to meet payroll, make capital investments, and create jobs. Some 75% of banks polled in October said that they had tightened their lending standards for small business loans within the previous three months, and 90% said that they were charging more for loans and credit lines, according to the Federal Reserve. The Small Business Administration (SBA) in January reported that it had processed 57% fewer small business loans last quarter than it did in the same period the previous year. The total dollar value of loans processed by the SBA also plummeted 40% from the previous year, from $3.24 billion to $1.94 billion.

PrintingforLess.com anticipates receiving a line of credit from a regional bank—after being rejected by its local bank and shelving expansion plans.

The Impact—A Chamber Member's Perspective

When Dan Rice of PrintingforLess.com wanted to hire as many as eight new workers six months ago, he turned to his local bank in Livingston, Montana, where the company had been a reliable customer for five years. But when Rice's request for a $500,000 revolving credit line was rejected, PrintingforLess.com got a firsthand lesson on the far-reaching effects of the current economic crisis.

Not that Rice, vice president of Corporate Affairs for PrintingforLess.com, didn't see trouble brewing. His 162-person company began seeing a slowdown in new customer growth in June 2007. In addition, the company has seen credit card companies tightening up their credit lines and vendors becoming increasingly nervous about accepting credit cards for payment. PrintingforLess.com barely escaped having its own credit limits slashed by 20%. "We've been a customer for 10 years. We've always paid on time, the full amount, and we're talking hundreds of thousands of dollars of business," says Rice.

PrintingforLess.com has had to put its expansion plans on hold. The company is building a new relationship with a larger, regional bank and expects to have its application approved soon. However, Rice's plans for the money have changed. "Six months ago, we were going to hire between five and eight employees with that money. Now the prudent course is to have the money on hand as a rainy day fund and not reinvest it," Rice says.

The Solution—The Chamber's Plan of Action

The Chamber is aggressively pushing for a stimulus package large enough—3% to 5% of the gross domestic product, or $500 billion to $700 billion-to pull the economy out of the ditch. The package should contain a mix of tax incentives for businesses, investors, and individuals; government spending; special assistance to critical industries; and breaks for existing and prospective homeowners.

On the spending side, the Chamber endorses government expenditures that will have a reasonably near-term impact and meet a legitimate long-term need in the economy. This would include projects to repair, upgrade, and enhance the nation's transportation, energy, water, and telecommunications infrastructure.

On taxes and credit, the Chamber is lobbying for increasing the caps on investment write-offs, extending the carryback period for net operating losses from two years to five years, waiving taxes on debt repurchase income, and implementing a temporary tax credit for the purchase of vacant homes and/or significantly reducing mortgage rates.

The Chamber also supports reducing the corporate capital gains rate to 15%, extending bonus depreciation and increased Section 179 expensing provisions, extending the reduced tax rate on dividends and capital gains, and temporarily reducing borrower and lending fees for SBA loans.

Further, the Chamber is strongly recommending financial assistance for hard-hit industries such as housing and travel, rebate checks for taxpayers to stimulate consumption, and a social safety net to help the jobless and their families.

"If someone tries to sneak into a stimulus package provisions that would add unnecessary costs, regulations, or lawsuits, the Chamber will work to ensure that they are delayed, changed, or rejected," says Chamber President and CEO Tom Donohue.

Go to www.uschamber.com/sab.