Published: September 05, 2009 07:02 am      

A little incentive — 09/06/09

Pullin bill can create jobs by helping small businesses grow

More important than the prestigious award State Rep. Tanya Pullin received from the National Federation of Independent Businesses is the law she guided through the Kentucky General Assembly that earned her that award.

House Bill 3 has the potential of creating hundreds of new jobs in small Kentucky communities that have little chance of attracting a major employer that immediately would create hundreds of jobs. Instead, House Bill 3 will create jobs two, three or four at a time by helping small businesses grow.

In fact, Tom Underwood, state director of the NFIB, said the bill Pullin created is so unique that it could become the model for similar laws in other states.

“Our research shows that it is the first of its type in the United States and a number of my colleagues are working on similar bills in other states,” Underwood said.

Kentucky and other states have long offered tax incentives to lure major industries to the state and to help existing large industries expand, but Pullin’s bill is the first to offer tax breaks to small businesses whose expansion may create on only one or two new jobs.

The reason states have favored tax incentives for large businesses and not small ones is understandable. Providing tax breaks to create only one to five jobs is not going to generate the kind of positive publicity politicians crave. Providing incentives to bring hundreds of jobs to a community is front page news, giving an incentive to create two or three jobs will create nary a ripple.

Yet most new jobs are created by small businesses opening or expanding, not by luring major employers to a community. Underwood says more than half of Kentucky’s workers (51 percent) are employed by small businesses with three to five employees.

There are 73,000 small businesses in Kentucky with fewer than 20 employees but only 149 businesses with more than 500 employees, Underwood said. Numbers like that provide a strong argument for state government doing something to help small businesses grow, but Underwood said they are “the ones who get left out whenever there is a stimulus package, economic development credits or pretty much anything else that we throw at manufacturers and large industry.”

But not any more. At least not in Kentucky. When Pullin’s bill approved by the 2009 Kentucky General Assembly takes effect in the 2012 tax year, it will offer tax breaks to businesses that invest at least $5,000 in capital equipment and technology and create at least one new job. The tax credit can be carried forward for at least five years for a maximum of $25,000.

While small businesses create the most jobs, they also have a high rate of failure. Many of them close within the first year, and others teeter on the brink of insolvency. If a tax break can help a small employer stay afloat, it is well worth the state’s investment.

Many of today’s major employers started out small. Ashland Oil was a small company with only a few employers when the late Paul Blazer purchased an existing refinery in the 1920s, and Dollar General store got its start in the small western Kentucky town of Scottsville. The opening of a discount store with a handful of employees in Rogers, Ark., in 1963 was the seed that grew into Wal-Mart, the world’s largest retailer.

We’re not saying that a small business that receives and tax incentive in Kentucky will become the next Wal-Mart, but you never know, do you? Small businesses often are the incubators for innovative ideas that help them flourish.

We congratulate Pullin for receiving the Guardian of Small Business Award, the NFIB’s most prestigious honor. In a state that has dozens of small towns that are a bit off the beaten path, her bill has great potential for creating jobs. Individually, the jobs House Bill 3 will help create are unlikely to attract much notice, but together they will have the potential of playing a major supporting role in helping Kentucky prosper.