President Barack Obama’s re-election to a second term takes away some of the uncertainty that small business owners have been carrying around.
The question now is whether he can satisfy those who say he hasn’t done enough to help them expand and create jobs.
During Obama’s first term, the president pointed to steps he took to help small companies, such as proposing the Small Business Jobs Act of 2010 that cut taxes for small companies and made it easier for them to get federally guaranteed loans. These steps helped some small businesses start 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,” says 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 that they are being squeezed by excess regulations.
No president has a 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 their owners report their business taxes on their personal returns. Republicans in the House will oppose that tax increase, and the result may be a stalemate.
“I don’t think anything’s going to change,” says 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 28 percent from its current 35 percent. Manufacturers would pay no more than 25 percent. He’s also backing more liberal tax deductions for small businesses that buy equipment.
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 their 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 employees. What employers don’t know yet is how much that insurance will cost. That won’t be determined until states set up exchanges where individuals and companies can buy coverage.
Economy and budget
Obama 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 what’s known as the fiscal cliff — the combination of severe budget cuts and the expiration of Bush administration tax cuts that take effect with the new year.
But if the deficit isn’t dealt with soon, taxes will have to rise. That would leave small business owners with less money to invest in their companies.
“That is ultimately going to be a huge problem. As government grows and the size of the deficit grows, that when you’ll see a drag on economic growth,” says David Primo, an associate professor of political science and business administration at the University of Rochester in New York.
Look for Obama to continue a mixed record on regulation — creating more rules that small businesses will need to follow, but also being vigilant that regulations won’t be too burdensome.
“I don’t think there’s going to be a massive amount of difference for small businesses,” says Catherine Rudder, a public policy professor at George Mason University in Fairfax, Va.
Joyce M. Rosenbert, The Detroit News