The Foundry

Obama promised that the stimulus would “create or save” 3.5 million jobs, and significantly tempter the rising unemployment rate. Now that it is clear that his plan has failed to save or create jobs, and unemployment is still rising, Democrats are reaching out to small business.

“Small business is the engine of job creation and capital creation in our country,” Nancy Pelosi said yesterday. Their plan? Use more taxpayer money to increase Federal loans to small businesses—those that qualify according to government guidelines, of course.

But wait—right now, the majority of small business tax filers face marginal rates of 30-40%, in addition to many other regulations and protectionism.

Why first burden small businesses with taxes and regulation, and then turn around and use that tax money to give them loans? Why not instead first lower the tax rate, simplify and let go of some of the red tape, and then—if they are still struggling—consider using tax money to make special loans? Wouldn’t that make more sense?

The American Institute of Certified Public Accountants offered a very modest set of tax simplification proposals. The CEO said, “The dynamic American economy is rebounding slowly and, we believe, is burdened by an unnecessarily cumbersome and somewhat outdated income tax system. In particular, we see significant problems for small businesses arising from the increasing complexity of the tax law.”

Indeed, does it not make sense to first reduce existing tax and regulatory burden before jumping to subsidize?