The following was produced by the Institute for Local Self-Reliance and the American Independent Business Alliance.
Independent businesses have long been the backbone of the American economy and way of life. They play a critical role in:
- keeping the American Dream alive. For generations, starting a small business has been a key means by which families have pulled themselves out of low-wage jobs and into the middle class.
- building strong communities. Studies show that small businesses contribute more of their revenue to charitable causes than big businesses.
- countering sprawl, reducing traffic, and protecting open space. Local businesses favor locations in downtowns and neighborhood business districts. These compact areas are less costly in terms of public infrastructure and services, compared to sprawling, auto-oriented shopping centers, the development of which can precipitate a rise in local tax rates.
- strengthening local economies. Local businesses re-spend a much larger share of their revenue within the local economy compared to national chains, creating more jobs and opportunities.
- protecting consumer interests. A marketplace of tens of thousands of 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 economies composed of many small businesses focused primarily on serving local needs are more diversified and stable than those dependent on a few large firms, and less vulnerable to distant economic forces.
Yet, despite their importance, independent businesses are rapidly disappearing as fewer and larger corporations increasingly dominate almost every sector of the economy. Contrary to conventional wisdom, the demise of independent businesses is not the inevitable result of market forces and consumer choices. Public policy at all levels of government has played a major role in fueling the growth of large corporations at the expense of America’s independent small businesses.
To level the playing field and allow small businesses to originate and flourish, we advocate the following policies (scroll down for federal, state, and local policies):
Antitrust
Strengthen and enforce federal laws that prohibit predatory pricing and price discrimination.
Preventing large retailers from misusing their size and market power to gain an unfair advantage over their smaller competitors is essential to protecting consumers and ensuring independent businesses an opportunity to compete.
Community Reinvestment
Support and strengthen the Community Reinvestment Act.
Since the 1970s, the Community Reinvestment Act 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. Yet several attempts are underway to significantly weaken and even abolish the law. In particular, some banking regulators and lawmakers want to exempt certain size classes of banks and saving associations from the CRA. Moreover, the CRA’s provisions have not been extended to mutual funds, pension plans, and other non-bank entities that now account for a majority of the financial industry’s assets.
Financing
Fully fund 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, accounting for some 40 percent of available financing. Much like federal home mortgage guarantees, much of this financing would not be available without the 7(a) program. The program’s future, however, has been threatened by recent policy changes and funding cuts.
Local Authority
Reject any international trade treaty that prohibits cities and states from favoring local businesses in government contracts and purchases.
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 received. Provisions in some proposed international trade agreements could overturn these preferences.
Sales Tax
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 that local retailers are required to charge. This policy gives out-of-state companies a five- to eight- percent price advantage over local stores.
Antitrust
Strengthen and enforce state laws that prohibit predatory pricing and below-costs sales.
By selling certain lines of goods below cost for a prolonged period, large retailers can force small businesses to close. Consumers ultimately suffer; once competitors have been eliminated, prices are likely to rise. Increased monitoring and enforcement of state predatory pricing laws will help maintain fair and vigorous competition.
Economic Development
Support and fund comprehensive downtown revitalization and small business development programs.
In many cases, state economic development programs are focused 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 local business development. 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.
Eminent Domain
Restrict the use of eminent domain to truly legitimate and necessary public 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 – has been abused with increasing frequency in recent years. There have been numerous cases in which local governments have seized homes and small businesses, not for legitimate public uses, but rather to transfer the property to a chain retail developer.
Income Tax
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. Sixteen states have eliminated this competitive imbalance by adopting a policy known as combined reporting.
Regional Cooperation
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 approach to land use planning has led to massive over-building of big-box stores in most areas of the country. Many large retail projects are approved without any consideration of regional impacts, including vacancies in downtowns and other shopping centers. Developers often play neighboring towns against one another to exact tax breaks and other concessions. One solution is increased cooperation among neighboring communities through regional land use planning, development review, and tax-base sharing.
Sales Tax
Endorse state participation in the National Governors Association’s Streamlined Sales Tax Project.
Federal policy largely exempts internet and mail order retailers from collecting state and local sales taxes. This policy gives out-of-state companies a 5-8 percent price advantage over local stores. 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 will largely 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.
Subsidies
Prohibit cities and state agencies from providing development subsidies and tax incentives, including tax increment financing, for projects that are more than one-third retail, 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. Wal-Mart, for example, has received over $1 billion in public subsidies from state and local governments, according to a report by Good Jobs First. These subsidies not only create an uneven playing field for independent businesses, but studies have found that big-box stores produce no real growth in the local economy and actually eliminate as many jobs as they create.
Downtown Revitalization
Develop a long-range, comprehensive downtown revitalization and small business development plan, and ensure that transportation and infrastructure policies support the downtown.
Cities should focus their economic development resources on creating and expanding small businesses, and they should develop long-range plans to revitalize their downtowns. Transportation, infrastructure, and other municipal policies should support the downtown. Pedestrian improvements should be part of transportation planning, for example, and public buildings, such as libraries and schools, should be located in or near the downtown when feasible.
Planning and Zoning Policy
Enact planning and zoning policies that support downtowns, encourage the proliferation of small-scale independent businesses, and discourage or limit big-box sprawl.
Cities should adopt planning policies, such as store size caps and economic impact standards, which discourage commercial sprawl. Planning policies should support and encourage small-scale, community-serving businesses that locate downtown or in established neighborhood business districts.
Subsidies
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. Wal-Mart, for example, has received over $1 billion in public subsidies from state and local governments, according to a report by Good Jobs First. These subsidies not only create an uneven playing field for independent businesses, but studies have found that big-box stores produce no real growth in the local economy and actually eliminate as many jobs as they create.
