Monday, April 11, 2005

The Bankruptcy Bill and Small Business

In his State of the Union address earlier this year, George Bush called small businesses "the path of advancement, especially for women and minorities". Indeed, various GOP leaders have characterized small businesses as the "backbone of the economy", and go out of their way to praise the entrepreneur class.

The National Federation of Independent Business, a leading small business advocacy group in Washington, sums up the Bush administration's feelings about small businesses thusly:

In his State of the Union address Wednesday night, President Bush spoke of small business as the very essence of the U.S. economy, crediting it as a rich source of entrepreneurship and job creation. To allow small businesses to continue to flourish, Bush urged Congress to take action on issues most important to small business, such as frivolous lawsuits, the rising cost of health care, and burdensome taxes and government regulations...

So what is it about the Bush administration where the words never seem to add up with their actions? As James Flanigan writes in the LA Times yesterday, the bankruptcy bill:

...But what most people don't realize is that it will hammer entrepreneurs and discourage small business formation, undermining a major pillar of an ownership society...

...Under current law it is possible for an entrepreneur to take a chance and fail, then have the debts discharged and move on to a fresh start with new financing. But under this bill, an entrepreneur who fails would have those debts hanging over him or her for years, limiting opportunities to raise new capital. And wages could be garnished at any job the entrepreneur might take.

The message of this legislation is "don't start your own business," says Rep. Howard L. Berman (D-North Hollywood), a member of the congressional committee that worked on the bill.

Sole proprietorships will suffer the biggest impact under this bill. As the article points out, even small incorporated business owners can take a big personal hit - and it only takes a single lawsuit or predatory lender to tip the scales for most of these types of business, which are typically not "cash rich". Flannigan's article continues:

Last year, 1.6 million individuals declared bankruptcy, 1.1 million of them in Chapter 7, which allows discharge of debts and a fresh start...the problem for small companies is that 20% — or 320,000 — of those individual bankruptcies are actually small, unincorporated companies, financed by credit cards, home equity loans and borrowings from friends. The reality of small business, as White points out, is that an unincorporated company's debts are personal liabilities of the firm's owner...

So, the question to ask your congresscritter today: why does the GOP support a bill that very clearly hurts a vital segment of the economy?