CIT’s bankruptcy message: An urgent need for creative action

CIT’s recent bankruptcy filing and news of an increase in small-business bankruptcies puts a glaring spotlight on the need for government action–action on a variety of fronts.

In an op-ed piece in the New York Times, Mark Zandi, chief economist of Moody’s Economist. com had some good suggestions–for examples, that Congress extend now-expired tax provisions in the stimulus bill that helped struggling firms. Specifically, he wrote:

To help small companies with cash flow, policy makers should also extend provisions in the current stimulus bill that allow money-losing firms to receive refunds of taxes paid on profits earned in previous years. (In return, they agree to pay higher taxes in the future.) Rules permitting such refunds are scheduled to expire at the end of this year; an extension through next year would provide quick cash for many firms that might otherwise be forced to close.

He also proposed that Congress allow funding for work-share programs, through which employers reduce hours and states make up part of lost wages with unemployment insurance payments. There are 17 states that do this now; he wants it to be nation-wide. He also wants the SBA to increase their guarantee to 97.5%.

These are the kind of creative suggestions we need–moves that cover a variety of fronts, from tax revisions to jobs programs and loan guarantees. But, while they’d be temporary, they also need to be kept intact until it’s clear they’re not necessary (as opposed to what happened with that tax provision).

While we’re at it, here’s another idea: I was talking to a Joe Abraham, a small business consultant in Hoffman Estates, Ill., who suggested offering tax credits to private investors for investing in small business. I’m not sure what the fine print would be, but the general concept seems promising.

Sure, these moves will come with a price-tag, but not taking the right steps to help small business, ultimately, will be even more costly for us in lost revenue and jobs.