M. Christian McNally and Emily Goff
February 27, 2013
The White House warns that sequestration “would reduce loan guarantees to small businesses by up to $902 million”—loans that it
claims are “investments that are helping grow our economy.” Setting this flawed Keynesian line of thinking aside, it’s worth investigating whether or not there is room to reduce spending at the Small Business Administration (SBA), which issues these loans.
No surprise, there is. The Waste Book 2012, from the office of Senator Tom Coburn (R–OK), found that cupcake shop owners across the country received $2 million in SBA loans in 2012. While these cupcakes may be delicious, propping up such small businesses with federal tax dollars is not a proper, much less critical, function of the federal government.
Access to capital is crucial for starting a small business, but private banks and venture capitalist firms—not the federal government acting as a bank—should be in the business of giving loans to entrepreneurs. They allocate capital more efficiently than the federal government, and they don’t leave taxpayers on the hook should a company fail. Taxpayers have seen Exhibits A through Z of what happens when the federal government picks winners and losers, in the slew of failed green energy companies that were financed with their tax dollars.
The Government Accountability Office has also identified waste at the SBA. It noted that the SBA is one of four federal agencies that run 80 economic development programs. Translation: significant overlap, duplication, and wasteful spending.