Government aid for firms with few employees is bad economics and bad policy

Stop Propping Up Small Business Robert D. Atkinson and Michael Lind. Mr. Atkinson is the president of the Information Technology and Innovation Foundation. Mr. Lind is a visiting professor at the University of Texas Johnson School of Public Affairs.

"Economist David Birch of the Massachusetts Institute of Technology claimed in the late 1970s—inaccurately, as it turned out—that small businesses were the jobs engine of the economy, which allowed advocates to argue that aid to small businesses was a driver of economic growth."

"A 2010 study published by the National Bureau of Economic Research showed, however, that it is the age of a firm, not its size, that matters for job creation. Just as children grow faster than adults, young firms grow faster than mature ones.

Over the decades, lawmakers have conferred an array of valuable benefits and exemptions on small firms. In the years since the SBA’s founding, Congress has passed at least 68 pieces of legislation explicitly favoring small business, including the Small Business Prepayment Penalty Relief Act of 1994, the Small Business Job Protection Act of 1996 and the SEC Small Business Advocate Act of 2016."

"firms with fewer than 11 employees are exempt from most workplace safety requirements. The Family and Medical Leave Act does not apply to small firms"

"A firm with fewer than 20 employees can legally discriminate against workers on the basis of age; if it has fewer than 15 employees, it can discriminate against qualified individuals with disabilities. Only federal contractors with 50 or more workers are required to use affirmative action plans when hiring."

"Profits from publicly traded companies (most of which are large) are typically taxed twice, once at the corporate level and again when shareholders accrue capital gains or dividends. By contrast, pass-through firms such as sole proprietorships, partnerships and LLCs—the lion’s share of which are small—are taxed only once, on the owners’ incomes."

"many tax incentives either apply only to small firms or are more generous for small firms, including (at least before recent tax-reform legislation) the ability to expense investments in new equipment, exemptions from imputed interest obligations, completed-contract rules, expensing of agricultural costs and a host of others."

"To give small businesses a leg up, federal agencies are required to buy goods and services from them even when their prices are higher. Federal agencies also provide a variety of special subsidies to small firms. Small firms get discounts when buying rights to use the radio spectrum and pay lower patent fees."

"most special favors for small businesses . . . have nothing to do with their difficulty in coping with regulation."

"Don’t all the breaks for small businesses at least help “the little guy”? No, in fact, they go mostly to the wealthy. In 2016, according to the nonpartisan Tax Policy Center, the top 1% of pass-through businesses earned 50.8% of the income for such firms. A mere 13.4% of all pass-through income went to the bottom 60%."

"“More wealthy individuals are small-business owners than poor individuals. The subsidy on small-business ownership just transfers resources to the wealthy from the poor.”"

"subsidies and other size-based industrial policies slow productivity growth by enabling less efficient small firms to gain more market share than would otherwise be the case. Second, discriminatory policies provide an incentive for small firms to remain small."