Just One Flaw

Nobody worries more in public about the small businessman than Congress, which has four vote-conscious committees looking into his problems. Last week a Senate-House subcommittee headed by Wyoming's publicity-conscious Senator Joseph C. O'Mahoney held out more promises of help. The committee was worried because the number of new businesses established in 1948 was 394,700 while the number of discontinuances was 370,000 and the percentage of failures has been steadily increasing during the last four years. To help small businessmen, and to help start new enterprises, the committee recommended that the Government:

P: Set up special "capital" banks within the Federal Reserve System to furnish investment money to small business.

P: Sponsor a business loan insurance plan for commercial banks whereby part of the interest on small business loans would be used to underwrite losses.

P: Give RFC authority to make long-term loans and to guarantee more bank loans tosmall business.

P: Set up under federal supervision a system of cooperative lending associations, similar to the federal land-bank system.

Except for the system of cooperatives, most of these recommendations are already included in bills that stand a good chance of passage. Nevertheless, a basic flaw in the whole set of proposals was promptly spotted by the subcommittee's Republican minority, Ohio's Robert Taft and Massachusetts' Christian Herter. They thought that the subcommittee had missed the main point which its investigation brought out. One of the "fundamental causes" of small business failure was a lack of investment capital, said Taft & Herter. This was due mainly to the "high tax rates on middle and higher incomes," and the double taxation of dividends. Said the Republicans: "The best reservoir of equity capital should be the direct investment of millions of small-income savers .. . directly encouraged by [lower taxes and] elimination of double taxation."

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