Despite the seemingly endless number of Republican debates we have digested during the primary season, it seems that small business owners and entrepreneurs are not satisfied with what they have heard from the GOP field. Do they have reason to feel slighted? And what does the GOP have to offer small business? What has the Obama administration done to help or hurt small business?
The lack of policy clarity for small businesses stems from a variety of factors. The term “small business” itself is ambiguous–the small business “label” applies to a widely diverse group of firms. The political gridlock and polarization across the country and on Capitol Hill is exacerbating existing problems for small business and arresting the policy process that should be working for them. As small-business owners struggle to make decisions about the future, they are hampered by endless political infighting, vows of repeal and lawsuits over the constitutionality of existing law. It’s hard to imagine any politician right now has a good claim on the small-business vote.
The politics of “small business” are clear and easy. Americans in general love the idea of small business, love the small business owner and any attempt to support such a noble cause is met with resounding approval. James Surowiecki notes that small businesses have a hold on the public imagination. “We may spend our dollars at Walmart and IKEA, but in our hearts we have a soft spot for the corner store.” According to Gallup, almost 80% of the public has confidence in small business owners to create jobs and we are three times as confident in small business generally as we are in big business. It makes perfect sense for the President and his challengers to angle for the support of small businesses.
The political reality of pleasing this group, though, is tricky. A small business can be anything from your local frozen yogurt store that employs one manager and a handful of hourly workers to a manufacturing plant that employs 1500 people. Indeed, the Small Business Administration details a wide range of how small business is defined by the federal government. It stands to reason, therefore, that proposing policies for the benefit of small businesses will be good for some and bad for others.
Look no further than last week for evidence of this dynamic at work. President Obama proposed to elevate the Small Business Administration to a cabinet-level position, while consolidating and streamlining the various agencies that effect these businesses. The initial feedback on this idea was varied across the board. Some small business owners thought it would increase their standing, while others saw it as a marginalization.
So despite these challenges, what have the GOP candidates proposed that is supposed to help small business? They claim they will dismantle “Obamacare,” rollback federal regulations dramatically and lower taxes.
The one item that all of the GOP candidates have been united on is repealing one of President Obama’s signature accomplishments: the Affordable Care Act. Republicans have a lot of problems with the law (namely the individual mandate) but the concern for their small business friends is that it will place an undue financial burden on business owners to provide an acceptable level of health insurance to their employees or pay a fine. Since the vast majority of people in this country get their insurance through their employer, however, it was somewhat inevitable that employers, big and small, would be affected by any change in health insurance law.
Indeed, even a cursory review of small business reaction to “Obamacare” shows that owners are concerned about the cost of complying with the law. Whether it actually will hurt companies will depend on the business, of course. The very small coffee shop or laundromat with 25 employees or less is completely exempt from the requirements and thus not effected. Larger operations like fast food restaurants that have large numbers of hourly employees do stand to face fines for not providing insurance.
However, the ACA does provide tax credits for up to 50% of the cost of providing insurance. In fact, there is some evidence that this tax credit has already encouraged some small businesses to provide insurance to their employees.
So what’s the GOP alternative to “Obamacare”? In essence, all of the candidates would remove the employer requirements to provide insurance. For the bottom line of businesses, this obviously would be a positive. The Republicans generally want to move the health care system in a more market-based, individual-centered direction, despite the overwhelming evidence that health insurance can never be a true, transparent market in any sense of the word.
The GOP candidates are vague on specifics of what would replace “Obamacare.” Whether its full repeal (easier said on the stump than passed through Congress) would usher in a new wave of prosperity for small business is unclear at best.
The second major ball and chain dragging down small business, according to those on the campaign trail, is the ever-villified “red-tape”. Mitt Romney in particular has made this a major theme of his campaign. He claims that he will radically and swiftly re-make the federal bureaucracy and eliminate all Obama-era regulations, including Obamacare and Dodd-Frank.
This sounds great on stage and looks good in print. The political reality of achieving such an ambitious goal, however, is a different story altogether. Repealing laws requires congressional approval, and as we know it is almost impossible to get anything passed in our deeply polarized legislative environment. Reforming the vast federal bureaucracy will also prove difficult, as a lot of regulation, particularly the environmental kind, will be defended by someone who has a stake in keeping it.
Again, across the board, the Republican candidates want to lower the top marginal tax rates, in part to boost those they claim are the real “job-creators”. Indeed, this would be a boon for the small business owner that does very well for him or herself. A sole proprietor that earns over about $360,000 annually would have any income over that taxed at the top rate of 35% (or 39.5% if the Bush tax cuts are allowed to expire for this group). If your business is so profitable that you able to pay yourself an income at this level, you are in elite company. The vast majority of small business owners do not enjoy these types of profits and thus would not be affected by a decrease in the top marginal rates.
The GOP field also advocates lessening or eliminating capital gains taxes. While this may encourage investment in start-ups that are looking for capital, it would have no effect on the many small businesses that are operated independently of outside investors.
At the end of the day, though, what would help the economy and businesses across the board, big and small, is more money in the pockets of the everyday consumers who buy the products and services your business wants to sell. This will require an economy that is growing, incomes that are rising and consumers that are confident. The trend in these economic indicators come late summer and early fall will portend who really gets to be the candidate of small business.
The opinions contained in this column are solely those of the writer.
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