How Does the Economic Stimulus Plan Affect Small Businesses?

Why an Economic Stimulus Plan

In an attempt to avoid a long and deep recession, the government offers its taxpaying citizens an economic stimulus plan in an attempt to jump-start the economy.

Webster's dictionary defines a recession as "a period of reduced economic activity." With rising fuel, gas and food costs, the fear of unemployment and plunging retirement nest eggs as a result of an unstable stock market, many consumers are holding on to whatever money they have. The consumer's lack of spending, although understandable, inadvertently helps to lengthen and deepen the recession.

Small businesses suffer most when the economy slows down. Not having the resources of larger corporations, small businesses don't have the luxury of downsizing employees in an attempt to cut expenses to show a profit on their balance sheets. Many small businesses operate using a lean staff. Letting go of employees because of an economic downturn renders the small business inoperable. Unfortunately, many of them are forced to go out of business.

Prior government stimulus payments ranged from $300 to $600 for eligible individuals and $600 to $1,200 for eligible joint filers. The economic stimulus payment helped small businesses because the check amount provided just enough money for consumers to purchase the items sold by small businesses.

If the economic stimulus payments were much higher, say $25,000, consumers might purchase large ticket items such as cars, home down payments and boats. Those items are not items traditionally sold through small businesses. However, with checks averaging $300 to $1,200, consumers could purchase smaller ticket, less expensive items sold by small businesses.

While an economic stimulus does help small businesses, the conundrum is how to maintain the increased spending.

The Economic Stimulus Act helps small businesses on the back end, too. It allows a tax break for business owners who purchase certain new equipment for their businesses during the period of December 31, 2007, and January 1, 2009. The act allows businesses to depreciate 50 percent of the equipment cost in the same year the equipment was first used. The remaining depreciation is then accounted for in accordance with the standard depreciation rules.