Post-Election for Small Business: Change and Hope, or Worries and Uncertainty?

Ray Keating

Now that the 2008 election is over, there are a wide range of policy issues that warrant watching for entrepreneurs, small businesses and their employees.

Consider, for example, the following:

• Economic stimulus. There's an apparent consensus among the leadership in Congress and President-elect Barack Obama that another round of "economic stimulus" is needed. On the agenda seems to be another round of tax rebate checks, and a variety of government spending initiatives, including more dollars for food stamps, unemployment benefits, infrastructure spending, and the states. Unfortunately, small businesses have to be prepared for the reality that this will do little or nothing to actually get the economy back on a track of strong growth.

• Taxes. During the campaign, Obama was clear in his preference to raise taxes on upper-income earners, while suggesting targeted tax relief measures at other income levels. Unfortunately, the proposed tax cuts do little to boost incentives for working, investing and entrepreneurship. Although, one exception would be his proposal to eliminate capital gains taxes on small, start up firms. However, how those businesses are defined, and what strings might be attached - such as required holding periods - remain a mystery. Meanwhile, increased personal income, capital gains, death and dividend taxes on higher incomes will hit successful entrepreneurs, small businesses and investors, and that will have a negative effect on investment and job creation.

Another question on the tax front is how will the new Congress and White House react to the enormous increases in spending and the budget deficit developing in this, and apparently upcoming fiscal years? There simply are not enough "rich" people to tax in order to pay for these massive spending increases.

• Bailouts. Small businesses should be concerned as current taxpayer-funded bailouts progress, and if any new ones are undertaken for certain faltering businesses and/or industries. The resources government uses are being diverted from other, private-sector ventures.  When government controls resource allocation in this way, it is not good news for the economy and entrepreneurs seeking capital.

• Trade. Even though international trade has become increasingly important for U.S. entrepreneurs, businesses, workers and the economy, President-elect Obama has sent mixed signals, at best, on trade, including, for example, his vote against CAFTA, opposition to trade deals with Colombia, Panama and South Korea, and proposal to rework NAFTA. In addition, since he received considerable support from labor unions in the election, they will be exerting pressure to move him further into the protectionist trade camp.

• Energy. Energy costs remain a problem and an uncertainty for small businesses. The Obama agenda does not remove, but instead adds to those uncertainties. Most prominently, will he go ahead with a windfall profits tax on oil companies that would raise the costs of and discourage domestic energy production? And will he proceed with a cap-and-trade regulatory system targeted at reducing CO2 emissions that will raise energy costs still further?

• Health Care.  President-elect Obama has made no secret about his desire for greater government involvement in health care. That, of course, would come with higher costs, which will translate into reduced access to affordable coverage. A big question for small business is President-elect Obama's support for a "play or pay" system. That is, either businesses provide health insurance, or they will pay a tax so the government can provide such coverage. This obviously will raise costs for business, which will take a toll on jobs, wages and the economy. But in terms of directly hitting the bottom line of small businesses, Obama has said small businesses would be excluded. But how he would define "small business" is another mystery.

The post-election questions for small business are many. There is a great deal of talk these days about change and hope. For small business owners, unfortunately, it seems we could be in for more worries and uncertainty.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

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