The Washington PostDemocracy Dies in Darkness

Opinion Small businesses can drive the economic recovery — with our help

By
September 17, 2020 at 7:00 a.m. EDT
An empty storefront in Concord, N.H., on Monday. (Elizabeth Frantz/Bloomberg)

Steven Hamilton is an assistant professor of economics at George Washington University.

With so much tragedy to absorb in recent months, it’s been easy to overlook an emerging crisis. While we’ve been preoccupied by the mounting coronavirus death toll and record unemployment, millions of small businesses have been teetering on the brink. These businesses employ nearly half of all Americans. And once the pandemic subsides, their fate will help define our recovery.

So far, they’ve been decimated. Over the first two months of shutdowns, small-business revenue dropped more than 40 percent. For a while, they were able to draw down cash reserves to stay afloat. But by July, more than 420,000 small businesses had already been lost.

Full coverage of the coronavirus pandemic

It’s even bleaker in certain industries. At the peak of the shutdowns, revenue in leisure and hospitality was down more than 70 percent. By July, more than 13 percent of all U.S. restaurants, employing around 1.4 million people, had permanently closed. Even in an optimistic scenario, small-business deaths could be at least 50 percent higher than at the peak of the Great Recession.

The recession created by this pandemic is very unusual. The reduction in activity because of social distancing cannot be offset by traditional stimulus. No amount of checks to households is going to open a bar shut down by local authorities, get its bartenders back to work or pay its rent. This means small businesses need direct support.

Back in March, when we expected the government to do what it took to suppress the virus, Congress authorized half a trillion dollars to prop up millions of businesses for two months. This was meant to buy time. In nearly every other advanced country, it did. In much of the world, community transmission was halted, allowing lockdowns to end and life to return to some semblance of normalcy. But the United States didn’t do that.

Instead, our businesses reopened into a hostile and uncertain environment. Six months after the crisis began, small-business revenue has leveled off far below precrisis levels. As long as the disease continues to spread, the cost of regulations and mitigation measures will continue to weigh heavily. And there is no clarity about the future. Will we ever get on top of the virus? When will a vaccine arrive? When it arrives, will it work?

It looks like we’ll be living with covid-19 for some time. Hopes for a “V-shaped recovery” should long have been abandoned. Ambitions to freeze every small business while suppressing the virus, and then thawing them all out as the economy reopens, are well past their expiration date. We must respond to the crisis as it stands today.

Many hundreds of thousands of small businesses — and the millions of jobs they’re responsible for — are gone. There’s nothing we can do about that now. But we can still do something to help those that remain.

Of course, effective support will be costly. But the consequences of inaction will be dire. A large volume of additional small-business failures would swamp bankruptcy processes and add to an already overburdened unemployment insurance system. The businesses themselves represent tremendous value that would be lost, including the links between businesses and their employees, suppliers and customers. This loss would have a lengthy scarring effect on our economy; it took more than a decade to recover the number of businesses lost during the Great Recession.

Over the past few months, many small businesses have coasted on the support authorized back in March. There is still time to avert further catastrophe, but the window is closing. The first round of stimulus was born from uncharacteristic bipartisanship. It’s past time to do it again. Both parties have put forward plans with good features — the Democrats’ more generous support for payroll and the Republicans’ support for coronavirus mitigation costs and hiring incentives.

We are interested in hearing about how the struggle to reopen amid the pandemic is affecting people's lives. Please tell us yours.

In a Hamilton Project policy proposal released Thursday by the Brookings Institution, I advocate a significant boost to small businesses in the form of refundable tax credits — that is, tax credits that can be greater than a business’s total tax bill. These credits would cover 80 percent of wages up to $15,000 per quarter and an additional $5,000 for each of the first 10 employees to cover non-payroll costs such as rent, interest, utilities and coronavirus mitigation. The credits would be available only to businesses that have fewer than 500 employees and whose revenue has declined at least 30 percent since the crisis began.

The relief package can’t be as generous — nor should it be as scattershot — as it was in March, but this proposal would make a big difference. It would prevent the closure of a large number of small businesses and generate a powerful incentive for them to retain their employees and hire new ones. It would help protect the economy so we can bounce back once we’ve beaten the virus. The case is clear — we owe it to millions of struggling small businesses to act.

Read more:

The Post’s View: Here’s a proposal that could lead Congress out of its impasse on pandemic relief

The Post’s View: A government shutdown is looming. Congress must make a deal in time.

Helaine Olen: Small-business owners are realizing they are the victims of another Trump con

Lyle Albaugh and Donald J. Boudreaux: Small businesses like ours are the most vulnerable in lockdowns

Jim Clark: What Democrats don’t understand about business