EXPAND & CREATE: Small-business owners look ahead

Monday, November 12, 2012
President Obama speaks about the economy and the deficit Friday in the East Room of the White House. (Jacquelyn Martin ~ Associated Press)

NEW YORK -- President Barack Obama's re-election is sinking in. No matter who small-business owners voted for, the election takes away some uncertainty they have been carrying. The question is whether Obama can satisfy those who say he hasn't done enough to help them expand and create jobs.

The president pointed to steps he took during his first term to help small companies, such as proposing the Small Business Jobs Act of 2010 that cut taxes and made it easier for small companies to obtain federally guaranteed loans. These steps have helped some small businesses begin their recovery from the recession.

"We've been seeing steady, albeit modest, growth in the economy since the president took office, and we are cautiously optimistic," said John Arensmeyer, CEO of Small Business Majority, an organization that lobbies on behalf of small companies.

Even so, many small-business owners are critical of the president's performance. They are anxious about taxes and the bulging federal deficit. Many opposed the health care overhaul and complain they are being squeezed by excess regulations.

"I've never seen that Obama understands what it takes to be a small-business owner," said Lorne Campbell, who voted for Republican Mitt Romney. Campbell is the co-owner of Occasionally Cake, an upscale baker outside of Washington, D.C., He is worried not only about the economy but about looming budget cuts that could make his customers forgo the treats his two stores sell. Campbell has limited his hiring to part-time workers, and doesn't plan to hire anyone full time.

Many advisers to small businesses say companies need to keep an eye on what's happening with taxes and regulations, but they still need to try to expand and grow.

"You should always be looking at maneuvering through an uncertain future instead of saying, ‘the future's uncertain and I will do nothing," said David O'Brien, a financial planner in Richmond, Va., whose small-business clients include engineering firms and technology companies.

Now that Obama has won four more years, what can small business owners expect?

Taxes

No president has complete say over how much anyone, including small-business owners, will pay in taxes. Expect the divided Congress to battle over Obama's request to raise the top tax rate on many business owners to 39.6 percent during 2013. That's the highest personal tax rate, and it affects some small businesses because owners report their business taxes on their personal returns. House Republicans will oppose that tax increase, and the result may be a stalemate.

"I don't think anything's going to change," said Peter Cohan, a lecturer in entrepreneurial strategy at Babson College in Wellesley, Mass.

But Obama has made a point of proposing tax cuts that will benefit many small companies. He's calling for the corporate tax rate to drop to from its current 35 percent to 28 percent. Manufacturers would pay no more than 25 percent. He also is backing more liberal tax deductions for small businesses that invest in new equipment.

"Congress will be more willing to work with the president on these small-business-targeted tax policies," Arensmeyer said.

Recent history shows Arensmeyer may be right. Earlier this year, there was

bipartisan support in Congress for the Jumpstart Our Small Business Startups Act. It was designed to help small companies obtain financing more easily.

Health care

Obama's re-election means the health care overhaul will continue to be implemented, but small businesses still have to wait to find out how much it will eat into profits.

Key provisions of the law go into effect in 2014, including the requirement that businesses with 50 or more employees provide affordable health insurance for workers. What employers don't know is how much that insurance will cost. That will not be determined until states set up exchanges through which individuals and companies can buy coverage.

Now that the overhaul has survived the re-election of Obama and a fight that advanced earlier this year to the U.S. Supreme Court, another big legal challenge is unlikely, says Risa Lavizzo-Mourey, president of the Robert Wood Johnson Foundation.

The economy and federal budget

The president may not be able to do much to get the economy growing much faster than it is now.

The federal deficit is part of the problem. Obama has to curtail spending -- but federal government spending is equal to nearly a quarter of income produced by U.S. citizens. Cut government spending, including federal contracts, and small businesses lose revenue and may cut jobs. Many have put hiring plans on hold because of uncertainty about the fiscal cliff -- a combination of severe budget cuts and the expiration of Bush administration tax cuts that takes effect with the new year.

But if the deficit isn't dealt with soon, taxes will have to rise in coming years. That would leave small-business owners with less money to invest in their companies.

Ultimately, this could become a significant problem. As government grows and the size of the deficit grows, a drag on economic growth could become evident.

Regulation

Look for the president to continue a mixed record on regulation -- creating more rules that small businesses must follow, but being vigilant that regulations are not too burdensome.

"On the plus side, Obama has signed a handful of executive orders directing agencies to review and ease, where possible, regulations that have an undue burden on small business," said Molly Brogan, a spokeswoman for the National Small Business Association, a group that lobbies on behalf of small companies. She said government agencies keep creating regulations that many small businesses find problematic. One example would be proposals from the Equal Employment Opportunity Commission that prohibit employers from requiring that workers have a high school diploma or conducting background checks.

"I don't think there's going to be a massive amount of difference for small businesses," said Catherine Rudder, a public policy professor at George Mason University in Fairfax, Va. "Obama in his policies is quite moderate and quite willing to compromise."

Small-business owners unhappy with regulations created during Obama's first term are likely to find ways around them -- particularly when it comes to health care. Some owners reluctant to buy health insurance for employees will make sure their companies don't have the equivalent of 50 full-time workers -- the threshold at which they would have to provide coverage under the health care law.

But owners will be happy with the Obama administration's regulations designed to help them. Lending and counseling programs at the Small Business Administration will continue to be a priority.

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