Working draft. Re-publication planned for 6/2018 (please do not circulate url until finalized).
For generations, starting or operating a small business has been a means by which families have gained freedom and improved their economic well-being while America built a vibrant middle class. Independent businesses play a critical role in:
- Building strong communities. Small businesses contribute more of their revenue to local charities and events than big businesses and play an integral role in community character and cohesiveness.
- Strengthening local economies. Local businesses re-spend a much larger share of their revenue within the local economy compared to national chains or remote web retailers, creating more local jobs and wealth.
- Protecting consumer interests. A marketplace of many diverse independent businesses is the best way to ensure innovation, broad product choices, and low prices over the long-term.
- Ensuring long-term economic stability. Communities with many small businesses and less dependence on global corporations are more stable and less vulnerable to distant economic forces. [See a full list of positive impacts and data sources.]
The declining rate of new start-up businesses and the increasing consolidation and market share held by large, often global, corporations is undermining these key benefits. Equally troubling, crucial checks on the size or power of large corporations go unenforced at the federal level. To level the playing field and allow small businesses to flourish, we advocate the following:
Jump menu to be added, State and Local sections may be combined. Potential additions: farming and ranching, crowdfunding, community banking, transportation. Some items may be eliminated.
- Strengthen and enforce federal laws that prohibit predatory pricing, price discrimination and anti-competitive size.
- Limit the size and local market share of banking corporations.
Preventing the largest corporations from misusing their market power to gain an unfair advantage over smaller competitors is essential to protecting consumers and ensuring independents have the opportunity to compete. Breaking up the mega-banks is one imperative and must be done directly, not by adding ever-greater regulations that drive up costs for community financial institutions.
- American Antitrust Institute
- Open Markets Institute
- Antitrust Policies Overview by the Institute for Local Self-Reliance
Break up the megabanks and support community financial institutions.
More than 500 community banks vanished between 2008 and 2015, leaving a gaping hole in many communities and diminishing opportunities for small entrepreneurs.
Support and strengthen the Community Reinvestment Act.
Since the 1970s, the Community Reinvestment Act (CRA) has required banks to invest and make loans in low- and moderate-income areas. The CRA has an impressive track record in spurring small business development and community revitalization. But while the sum of SBA loans has grown recently, the number of business loans under $150,000 backed by the SBA plummeted by two-thirds between 2005 and 2013 — from 74,000 loans to just 25,000.
Fully fund and improve the Small Business Administration’s 7(a) loan guarantee program, which provides critical capital for independent businesses.
The 7(a) loan guarantee program is the largest source of long-term working capital for small businesses in the nation. The program’s future, however, has been threatened by recent policy changes and funding cuts. While the sum of SBA loans has grown, the number of business loans under $150,000 backed by the SBA plummeted by two-thirds between 2005 and 2013 — from 74,000 loans to just 25,000.
Any international treaty on commerce must ensure cities and states cannot be punished for favoring local businesses, US-made products, or products meeting non-performance criteria, such as ethical sourcing or environmental impact. Local procurement preferences are the right of any government.
A number of cities and states have enacted policies that give preference to local businesses when awarding government contracts, provided the bid from the local business is within a certain range of the lowest bid. Provisions in some proposed international trade agreements could strip communities of the right to support local companies.
Enact legislation requiring all retailers to comply with state and local sales tax regulations.
Federal policy currently prohibits states and communities from requiring internet and mail-order companies to collect the same sales taxes local retailers are required to charge unless the company maintains a physical presence in the state. This policy gives out-of-state companies a five- to eleven-percent price advantage over brick-and-mortar businesses in most tax districts.
- Sources on State Sales Tax and Reform of Internet Exemption (AMIBA)
- This 2015 paper from Georgetown Policy Report offers a comprehensive analysis of the issue from a pro-reform perspective.
- AMIBA letter of endorsement for Marketplace Fairness Act.
Access to Capital
Support and fund comprehensive downtown revitalization and small business development programs.
In many cases, state and local economic development programs focus on trying to attract outside corporations. Very little attention is paid to helping small businesses expand and new entrepreneurs get started. States should direct more of their economic development resources toward enabling entrepreneurship. They also should establish comprehensive downtown revitalization programs and review state infrastructure and transportation policies to ensure they do not undermine the health and vitality of downtowns.
Restrict the use of eminent domain to truly public and necessary purposes.
Eminent domain – the power of government to take private property for public use (such as the construction of a school), provided the owner receives fair market value – is too often abused. In numerous cases, local governments have seized homes and small businesses not for legitimate public uses, but rather to transfer the property to a chain retail developer, pro sports franchise or other big business.
Resources: Castle Coalition
Reform state tax policies that place small businesses at a competitive disadvantage by allowing multi-state corporations to evade all or part of their state corporate income tax liability.
More than half the states have loopholes in their tax codes that enable multi-state retail chains to evade paying income taxes on all or part of profits earned at stores in those states. Small businesses with all of their operations in one state cannot take advantage of these loopholes and must pay taxes on all of their earnings. Many states have eliminated this competitive imbalance by adopting a policy known as combined reporting.
- Combined Reporting Overview (Institute for Local Self-Reliance)
Provide incentives to encourage neighboring communities to collaborate on land use planning; to develop a joint process for reviewing developments of regional impact, including large-scale retail projects; and to implement tax-base sharing.
Competition for tax base among neighboring communities and the lack of a regional land use planning has led to massive over-building of big-box stores in much of the U.S. Many large projects are approved without any consideration of regional impacts. Developers often play neighboring towns against one another to extract tax breaks and other favors (see below). Regional land use planning, development review, and tax-base sharing are key elements for reform.
Endorse state participation in the National Governors Association’s Streamlined Sales Tax Project.
Some three dozen states are participating in the Streamlined Sales Tax Project, which is working to simplify and align state and local tax regulations. This largely will eliminate the difficulty of complying with the varying regulations governing the nation’s 7,600 state and local tax jurisdictions, thereby paving the way for Congress to lift the tax exemption on internet and mail order sales.
Stop cities and state agencies from subsidizing large absentee-owned corporations that compete against independents.
Cities commonly provide tax breaks and other kinds of subsidies to underwrite the development of big-box retail stores. These subsidies create an uneven playing field that undermines independent businesses without yielding any long-term net increase in jobs.
Support Downtowns and Neighborhood-Serving Business Districts
Develop a long-range, comprehensive downtown revitalization and small business development plan, and ensure transportation and infrastructure policies support the downtown.
Cities should focus their economic development resources on enabling new small businesses and growth of locally-owned enterprises. Transportation, infrastructure, and other municipal policies should support downtowns and areas accessible via foot, bike and public transportation. Public buildings, such as libraries and schools, should be located in or near the downtown when feasible.
Restrictions on small business locating in or near residential area should be scrutinized closely and eased where no compelling public interest exists.
Planning and Zoning Policy
Enact planning and zoning policies that enable mixed-use development, small-scale independent businesses, and discourage commercial sprawl.
Planning policies should support and encourage small-scale, community-serving businesses that locate downtowns and established neighborhood business districts, or serve the needs of neighborhood residents.
Local Planning Polices to Strengthen Independents (Institute for Local Self-Reliance)
- Form-Based Codes Institute
Adopt a policy barring the use of subsidies and tax breaks for retail development with the exception of downtown revitalization projects and redevelopment of blighted low-income neighborhoods (defined as those in which the poverty rate is 30 percent or more) suffering from a demonstrable lack of retail services.
Cities commonly provide tax breaks and other kinds of subsidies to underwrite the development of big-box retail stores, fulfillment centers for Amazon.com, and other competitors of independent businesses. These subsidies not only create an uneven playing field for independent businesses, but big-box stores actually eliminate as many jobs as they create locally and decrease net employment nationally.
Add Your Thoughts!
We welcome your suggestions for improving this platform and useful resources to include/link. We also are eager to hear your stories about how specific policies or enforcement/non-enforcement has impacted you or your community.
Recommended for further reading: