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Time to Smack Down the Small Business Administration

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In 2012, Barack Obama elevated the administrator of the Small Business Administration (SBA) to a Cabinet-level position, where the office had been under Bill Clinton. The current administrator, Maria Contreras-Sweet, is unknown to the overwhelming majority of Americans, as are the thirty-three administrators who preceded her. This ignorance is about to change, for, according to a statement issued last month by Donald Trump,

My “America First” agenda is going to bring back our jobs and roll back the burdensome regulations that are hurting our middle-class workers and small businesses. To help push our agenda forward, I am pleased to nominate Linda McMahon as the head of the Small Business Administration.

Linda has a tremendous background and is widely recognized as one of the country’s top female executives advising businesses around the globe. She helped grow WWE from a modest 13-person operation to a publicly traded global enterprise with more than 800 employees in offices worldwide.

Linda McMahon is, of course, the wife of Vince McMahon, the head of World Wrestling Entertainment (WWE) and overseer of its Raw and SmackDown brands. Mrs. McMahon, who at one time served as president and later CEO of WWE, left the company in 2009 to run for the U.S. Senate in Connecticut. After twice receiving the Republican Senate nomination, McMahon was unsuccessful against her Democratic opponents in the general elections of 2010 and 2012. She then co-founded Women’s Leadership LIVE, an organization that equips women to “become leaders in their respective industries,” and became a major Republican fundraiser and donor.

After the inauguration of Donald Trump, all eyes will be on the SBA administrator, but few will be on the agency itself.

The SBA was established in 1953 when Dwight Eisenhower signed into law the Small Business Act. Its mission is “to aid, counsel, assist and protect the interests of small business concerns, to preserve free competitive enterprise and to maintain and strengthen the overall economy of our nation.” Headquartered in Washington, D.C., the SBA also has district offices in every state, regional offices, and disaster field offices. The SBA has more than 3,293 employees and an annual budget of over $700 million.

The bottom line mission of the SBA remains the same today as when it was created: “The SBA helps Americans start, build and grow businesses.” It does that primarily by guaranteeing bank loans to small businesses that would not otherwise qualify for them. The loans are often characterized by lower payments, longer terms, and increased borrowing limits than normal commercial loans. The SBA also provides counseling and training for small businesses; helps the federal government to ensure that at least 23 percent of prime federal contracts go to small businesses (especially woman-owned and service-disabled veteran-owned small businesses); and reviews congressional legislation, testifies in behalf of small business, and assesses the burden of regulations on small businesses.

Over the years, the SBA has been embroiled in numerous scandals and survived attempts to eliminate it. In 2001, a history professor at Southern Illinois University authored a critical history of the SBA titled Big Government and Affirmative Action: The Scandalous History of the Small Business Administration. David Stockman, Ronald Reagan’s budget director, termed the SBA a “billion-dollar waste ― a rathole” that benefited only a tiny number of small businesses. In testimony before Congress in 1985, he argued that SBA loans crowded out private-sector borrowing and reallocated funds “from more creditworthy to less creditworthy firms,” that high loss rates rendered the SBA a “money-losing bank,” that the original rationale for SBA loans no longer existed, and that disaster loans were unnecessary because homeowners and businesses could get federal disaster insurance.

But even if the SBA had no scandals and no waste, even if SBA loan guarantees didn’t represent a form of corporate welfare for the banking industry, even if the SBA didn’t benefit just a relatively tiny number of small businesses, even if SBA loans didn’t crowd out private-sector loans, even if SBA loan recipients never defaulted, even if the SBA didn’t have to rely on taxpayer subsidies, it is still time to smack down the Small Business Administration.

It is not the job of the federal government to help Americans start, build, or grow businesses. It is not the job of the federal government to subsidize any business. It is not the job of the federal government to favor small businesses over large businesses. It is not the job of the federal government to partner with the banking industry. It is not the job of the federal government to intervene in credit markets. It is not the job of the federal government to lend any business money. It is not the job of the federal government to guarantee loans to any business.

A recent article in Forbes mentions three ways that the new administrator of the SBA could boost small business: upgrade its technology, build stronger networks for women, and expand access to capital.

But if the federal government really wants to boost small business, it could eliminate the myriad of onerous regulations it has imposed on them, the anti-discrimination laws that stifle them, and the minimum-wage laws that drive up their labor costs.

Perhaps the best thing the federal government could do to help small businesses would be to eliminate the employer share of the unemployment tax and payroll taxes that they are burdened with. Under current law, the Social Security tax rate is 12.4 percent (split equally between employer and employee) on employee wages up to $127,200 and the Medicare tax rate is 2.9 percent (split equally between employer and employee) on wages of any amount. Small business owners who are sole proprietors pay both shares from their profits. Federal unemployment tax is paid only by employers. The rate is 6 percent on the first $7,000 of annual employee wages.

To be opposed to the Small Business Administration is not to be opposed to small business. To be opposed to the Small Business Administration is to be opposed to corporate welfare, cronyism, subsidies, and illegitimate functions of government.

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