Small business owners willing to trade tax credits for less red tape

Filed under Special Reports
Roy Chomko of Adage Technologies

Roy Chomko, co-founder of Adage Technologies in Chicago, plans to add two to four workers by the end of the year.

The more government tries to help, the more some small businesses say “thanks anyway.” For the amount of time it takes to read the fine print of most government programs, Roy Chomko, president of Adage Technologies in Chicago, says he could be finding new customers or serving existing ones.

As a result, he is among those small business owners who are skeptical that the payroll tax cuts and hiring tax credits President Barack Obama outlined in his jobs proposal to Congress Thursday night will be sufficient incentive for companies to add workers. Still, many small business advocates applauded the president for shining a spotlight on the important role startups play in the economy.

What the jobs act proposes

To encourage job creation, the $447 billion American Jobs Act includes slicing in half the payroll tax for businesses with payrolls of less than $5 million, eliminating the payroll tax for firms that add workers or increase current wages, and offering businesses a $4,000 tax credit when they hire those who have been unemployed for more than six months.  It also includes infrastructure spending to create construction jobs and relief for those facing prolonged unemployment.

But some questioned whether the proposals would result in substantial job creation because they don’t address companies’ critical need for sustained capital. “While these near-term fixes can help a good chunk of businesses, they are temporary and may not be enough to cause a business to hire who otherwise wouldn’t consider bringing on a new employee who will have significant costs far beyond the tax cut expiration dates,” said Todd  McCracken, president and CEO of the National Small Business Association, in a statement.

Others, however, defended Obama for acting to stem a decline in business confidence. “President Obama is taking necessary steps to force Congress to act now before America continues its downtrend in economic uncertainty,” Kenneth Wisnefski, a serial web entrepreneur and owner of WebiMax in Mount Laurel, N.J., said in an e-mail.

Free market solutions

Instead of blaming the government for the current economic situation, businesses need to adapt to changing market conditions, Wisnefski said. “Businesses both small and large are reluctant to head forward due to their hesitancy to adapt to change,” he said.

Others, however, suggest the credit crunch has prevented businesses from moving forward with new products or services. Politics aside, what most small businesses need most to survive and grow is regular customers, Chomko said. Startups in particular need a customer willing to give them a chance to prove themselves. “You always kind of need that Sugar Daddy client,” he said. Often it’s someone who already knows the entrepreneurs and trusts them.  “In return, they’re getting a higher quality product at a lower rate,” he said, as well as the satisfaction of knowing they’re helping an entrepreneur and the economy as a whole.

Once companies achieve regular sales, they will hire to keep up with demand. Chomko makes hiring decisions based on Adage’s sales and productivity. “It depends on the amount of work we have coming in and the amount we’re producing on a monthly basis. We track our time,” he said.  “We will only hire if we see the ability to use that person in a productive way. We’re just simply not motivated by any type of tax credit.”

The company, which has seen demand for its custom technology solutions increase substantially, plans to add two to four employees this year to its current workforce of 26, regardless of whether a tax cut is approved, Chomko said. The company had annual revenue of about $2.4 million in 2010, up 25 percent from the prior year, and is forecasting continued growth of 20 percent to 30 percent this year.

Time vs. money conundrum

But Adage is the type of company the jobs proposal could  be lost on. “We’re so busy that I have no time to dig through the requirements or even do the filing” for the tax credit, Chomko said. “I may have been able to sell a couple more engagements for the 10 hours I spent trying to recoup that savings,” he said.

Other proposals in the jobs act targeted at small businesses include extending tax benefits for business expensing into 2012 and reducing regulations to help business owners access capital. But McCracken suggested a disconnect exists between Obama’s rhetoric pledging to reduce red tape and new regulations from federal agencies, such as the National Labor Relations Board’s requirement that all private-sector employers post employees’ rights.

Others, however, said the Obama administration was on the right track, as small businesses historically have been the drivers of new job creation. “We encourage lawmakers to develop and support programs that will provide small businesses with the cash flow they need to keep their doors open, pursue new business opportunities and hire more workers, and urge them to support small business innovation, which fuels economic expansion,” said John Arensmeyer, chief executive of Small Business Majority, in a statement.

Arensmeyer encourages both political parties to support the needs of small businesses. “Spotlighting small businesses will help create a cycle of prosperity that directly benefits the economy by putting America back to work,” Arensmeyer said.

— Ann Meyer

Read more about small business and the economy on http://www.smallbizchicago.com/2011/09/capital-constraints-deterring-job-creation/.

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