Entrepreneurs Might Not Rise to Stimulus Bait

It's not just consumers with flat-screen envy who would benefit from the fiscal stimulus package.

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It's not just consumers with flat-screen envy who would benefit from the fiscal stimulus package. There are some goodies for small business, too. In addition to the tax rebates for most Americans, the proposed package boosts from $125,000 to $250,000 the amount small businesses can write off on their taxes for new equipment purchased in 2008. What's more, businesses with up to $800,000 in annual revenue now would be eligible. It may seem like a much needed life preserver for small business. "As soon as this is clear, [small businesses] know they can go out and make those purchases, so that's a deduction they can take this year," says Bill Rys, tax counsel for the National Federation of Independent Business.

But small businesses may not respond the way proponents are hoping. Some argue that small businesses will be conservative and hold back on investments to see where the economy goes. Also, small businesses tend not to sell much to quickly growing foreign markets, which might give them the incentive to spend now. For those reasons, economist Bernard Baumohl of the Economic Outlook Group says that the tax provisions "won't be much of an incentive to invest."

Quick fix. Regardless of what the stimulus package will actually do, what it will not do is equally relevant for small businesses. President Bush and Congress have chosen a short-term approach that gives the economy an immediate boost, rather than addressing long-term issues that may affect businesses' ability to thrive in years to come. For example, while corporations are not taxed on the income that they use to pay for their employees' health insurance, self-employed people can't do the same. National Small Business Association President Todd McCracken argues that lifting the taxation of healthcare would give a long-term stimulus to small businesses: "It would put a couple thousand dollars a year in the pockets of self-employed business owners, and, secondly, enable them to afford health insurance."

But Congress has chosen a different stimulus strategy, and while small-business owners will appreciate the extra cash, many are heading into uncharted territory. "There are a lot of young entrepreneurs who have never really experienced a deep recession," says Jeff Cornwall, director of the Center for Entrepreneurship at Belmont University. "And almost none have experienced a period of inflation, so they're not really sure what those words mean in their day-to-day business." They may be about to find out.