Obama, Democrats Must Embrace Small Business

"You didn't build that" illustrates the ignorance of the political class that is dragging down the economy.

President Barack Obama speaks during a campaign event at Capital University on Aug. 21, 2012, in Columbus, Ohio.
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Yet we all duly and readily extend credit to the virtuosos who define the arts and to champions in sports that the people come to see. Credit for the piano concertos, after all, goes to Mozart, not the Emperor Joseph. And the home run records belong to Babe Ruth and Roger Maris, not the New York City Public Works Commissioner for building a road to Yankee Stadium or the ground crews for keeping the dust down in the batter's box. But when it comes to the economy, acquisitive politicians don't want the public dwelling too long on what most people instinctively know, that rewarding small business initiative—rather than targeting it with higher taxes and more regulation—creates far more jobs than any government "stimulus."

[Read the U.S. News debate: Does stimulus spending work?]

We go through cycles of recognition about this. The "demand-side" economics and stagflation of the '70s in the Nixon and Carter years gave America a teachable moment, and Ronald Reagan took advantage of it. With early T.V. speeches that were expository, not theatrical, the Great Communicator got his title by explaining elementary economics and pointing to less government as the key to more growth and jobs.

President Obama, who believes his recent comments were taken out of context, and the Democratic Party, which will meet in convention soon, are now facing their own teachable moment. Clarifying their positions would advance the cause of economic understanding and help make this presidential campaign more about economic ideas than attack ads or consultants' maneuvers.

That is why as chairman of Job Creators Alliance—an association that speaks for entrepreneurs—I have recently written to the head of the 2012 Democratic Party platform committee, Los Angeles Mayor Antonio Villaraigosa, asking for a chance to work with him on a Democratic Party platform plank reaffirming strong support for small business and taking the one step that would be a huge boon to jobs growth. Under the administration's 2013 plan, small businesses face an imminent tax increase because over 75 percent of them pay taxes by using the personal form. Out of these 4.3 million businesses that have employees and file their taxes as individuals, nearly a third—1.2 million small businesses—would be considered "individuals making more than $200,000 a year." These job creators will face big new tax bills if the Bush tax cuts expire.

[Ron Lazof: How Government-Fueled Economic Uncertainty Costs Jobs]

Increasing taxes on this group is a threat to the prosperity of all Americans: They account for 91 percent of the income earned by pass-through employer-corporations (such as LLCs), which "pass through" to owners the tax liability on business income. Such businesses employ more than half (54 percent) of the private sector workforce and pay nearly half (44 percent) of all federal business income taxes. They are the engine of the American economy.

That's why the message of entrepreneurs at a meeting with Mayor Villaraigosa would be simple—cancelling the tax increases on small businesses and putting that commitment in the platform would be just the signal President Obama and his party need to send to business owners and executives.

In addition, we have some stories to tell the mayor. Most business owners have had, after all, their equivalent of getting up at 5 a.m., 350 days a year, to bake cookies and muffins. We need to tell those stories. (It's why Job Creators Alliance exists.) Because, as George McGovern noted, that sort of experience can be transformative, especially for the political class.

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