Experts Examine Small Firms' Role in U.S. Economy

Experts told the House Small Business Committee yesterday that times are tough for small firms with close ties to the housing market, but they're pretty good for those who have gotten cozy with the tech industry.

Small businesses dominate the home building industry, according to Michael Hodgson, the owner of consulting firm ConSol who testified on behalf of the National Association of Home Builders. He noted that 60 percent of the association's members build fewer than 25 homes per year and nearly 90 percent have less than $5 million in annual receipts.

While home builders are getting financially walloped in the nation's current economic downturn and housing crisis, Hodgson sees a bright spot that could help turn things around for small home builders -- energy-efficient construction and green building. According to the Partnership for Advancing Technology in Housing, the majority of green-home builders and manufacturers of green building technologies are small businesses. "This is a significant and important fact because housing comprises 16 percent of the U.S. gross domestic product," Hodgson said in a morning hearing that examined the role of small firms in stimulating the national economy. Read more about Hodgson's testimony on green building here.

Hodgson asked lawmakers to provide a temporary homebuyer tax credit like the one recently approved by the House Ways and Means Committee in the Housing Assistance Tax Act. He also said home builders, like a lot of businesses these days, are reporting financial losses when just a few years ago they were "generating jobs, providing local development and paying taxes." To that end, he asked lawmakers to extend a firm's net operating losses to carry back more than the current two years that they're allowed.

Executives from the Washington offices of tech powerhouses and Google also testified at the hearing, outlining some of their small business products and reiterating that the growth in the online economy has aided even the smallest firms in multiple ways.

A new generation of tools for small firms has allowed even the non tech-savvy business owner to come online, said Paul Misener, vice president of global public policy for Amazon. He also testified that small businesses account for a surprisingly large portion of the online economy according to Amazon's research. Misener said small businesses are "systematically undercounted in surveys, including the U.S. Census." The census's quarterly eStats report measures electronic commerce from public firms that report revenues in the millions of dollars so "obviously most small businesses online would be missed under these criteria," he explained.

David Fischer, a Google vice president who manages the firm's online advertising sales, told lawmakers that Google's ad programs help small firms compete more fairly with large companies and also help them connect with local customers.

For example, Google offers an ad program enabling businesses to create short text ads for their products and services and choose keywords for them. Advertisers then place bids indicating how much they're willing to pay if a user clicks on their ads.

CompTIA, a technology trade association, sent Marc Steiger, the CEO of DLP Technologies in Cincinnati, to talk about how his small computer software and hardware firm helps other businesses grow. He also applauded the Small Business Administration's loan program, which he said has greatly aided DLP.

Dennis Ceru, an entrepreneur expert from Babson College based in Wellesley, Mass., discussed the status and development of U.S. entrepreneurial activity. His research shows that 9.6 percent of the population between the ages of 18 and 64 is actively setting up a business they will own or co-own. Twenty-two percent of these early-stage businessmen and women believe their businesses will create more than 10 jobs and grow more than 50 percent in five years, compared to only 7 percent of established businesses. Interestingly, 49 percent of early stage firms plan to offer products that are new to some customers and 37 percent plan to use the latest technology in their business, compared to 31 percent and 11 percent respectively of established businesses.

Ceru also spoke about policy, saying the tax legislation that Congress is currently considering would treat venture capitalists' profits as ordinary income instead of capital gains and that would affect "early-stage companies that represent the highest investment risk, but that also create the most jobs and opportunities for the American economy."

By Sharon McLoone |  April 25, 2008; 2:42 PM ET Policymakers , Regulation Legislation
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WHILE SETTING TAX POLICY, and sending out rebates that are great on the surface, if they are borrowed money, then the hole is just getting bigger. It is also being all but ignored, particularly by the three candidates running for office.

.... If only one of them could present a plan.

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