What Price a President's Promise?


By Erin Chambers As he crisscrossed the country on the campaign trail, President Bush seldom delivered a stump speech without hailing small business and its positive impact on the economy. With an agenda of cutting taxes, opening up health-care options, and lowering regulatory hurdles, the President positioned himself as the small-business candidate, a far better alternative to a liberal senator from so-called Tax-achusetts. With the dust now settled and Bush readying for a second term, the strategy appears to have worked.

Bush's reelection has been cheered by many small-business owners and advocates, citing some of the very reasons Bush laid out during the campaign. But even with an increased Republican majority in Congress and a popular vote mandate that was lacking in his first term, critics question exactly how much small businesses will benefit over the next four years and they point to the President's record as evidence.

While small-business owners welcome a lighter tax load, many do not necessarily reinvest with the savings or hire new employees. Over the past four years, health care has become more costly and remains an issue small-business owners continually list as their top concern. And the Small Business Administration (SBA), a source of capital that helped fuel the early rise of companies like Staples (SPLS) and Apple Computer (AAPL), has seen its budget slashed 25% under the Bush Administration.

SIMPLE TAX CODE. The most immediate -- and universal -- benefit for businesses appears to be the simple fact that a long and contentious election season has finally come to a close. "It's healthier for business and the economy to know that we can move on now," says Cynthia Comparin, president and CEO of Animato Technologies, a Dallas-based consultancy.

The President's small-business supporters are indeed bullish on the next four years. "Basically, George Bush is for most of the things small business needs, like tax simplification, end of death tax, and clearer government regulation," said George Daniels, president of Daniels Manufacturing in Orlando, Fla. and a member of Bush's National Steering Committee on small business. "He has been fighting for them, and now, maybe, a few people in the Senate will get the message."

The centerpiece of the President's small-business agenda remains cutting taxes. Bush's tax relief for small business came in the form of capital-gains tax cuts in his first term and the promise to make them permanent in his second. He has increased the amount small businesses can write off as business expense, rather than taxable income, from $25,000 to $100,000. He also has promised a permanent repeal of the estate tax, which can harm small businesses and farms when they pass from one generation to next. "It's more about keeping what we have," says Comparin, whose outfit has a 50-person payroll.

"DEEPER INTO DEBT." An overwhelming majority of the National Federation of Independent Business, the conservative small-business lobbying group that boasts 600,000 rank and file, appears pleased with the outcome. In surveys leading up to the election, more than 90% of NFIB members supported the President. "Bush's tax-relief program has been a shot in the arm for small-business owners," NFIB President Jack Faris said in a statement following the election. "This victory is a prelude to permanent tax relief, as well as certainty and consistency in the tax code, for long-term planning and growth."

However, critics contend that Bush's tax cuts aimed at small businesses can also benefit wealthy individuals who file under the same Subchapter S tax status that small-business owners use, applying it toward passive income such as real estate. Others say the deficit-driving tax cuts make it more difficult to address issues such as health care and Social Security, which also impact small businesses, and a looming deficit can have a long-term impact on the overall economy, including interest rate hikes.

"I question Bush's record in his four years," says Michael Lipsky, a visiting professor at Georgetown University's Public Policy Institute and contributor to the left-wing American Prospect. "The belief that one can cut taxes and provide for social programs is just a fantasy that seems uncontested. If we'll have more of the same in the next four years, we will go deeper and deeper into debt without dealing with critical issues."

"DEVASTATING" FOUR YEARS. On the health-care front, Bush proposes association health plans, in which small-business owners would pool resources to help negotiate insurance. Bush also signed into law health-savings accounts, allowing individuals to set aside funds in tax-free accounts to be used for low-cost health care, and vowed to reduce the number of malpractice lawsuits, which he cites as a major reason for rising costs. It's all part of what the GOP describes as "creating an environment where small business can flourish."

The flipside, according to critics, is that Bush's plan may lower costs for those who already have insurance, but will not ease the burden on those business owners, particularly women and minorities, who can't afford it in the first place. "I've often said that health care is issue one through five for small business," says Joel Marks, director of the American Small Business Alliance, who describes Bush's first term as "devastating" for small-business owners' health-care options. "It's not just the enormous cost, but the complexity and uncertainty."

The drop in funding at the SBA, a principal source of startup capital for thousands of companies each year, remains a concern. In 2001, the SBA's total discretionary budget came in at $900 million, according to the Office of Management & Budget. In contrast, the SBA has only $678 earmarked for 2005. Facing depleting funds, because of increased demand, the SBA was forced to temporarily abandoned its popular 7(a) program in January. In fiscal year 2004, which ended Sept. 30, the SBA reported guaranteeing a record 75,825 loans for $12.7 billion in the 7(a) program, which is now primarily "self-sufficient" or funded by fees paid by lenders and borrowers (see BW Online, 11/9/04, "The Next Four Years at the SBA").

CHAIRMAN KERRY. SBA Administrator Hector Barreto says the government is doing more with less. "I've told people continuously we have enough resources to do our job and that's proven by the bottom line," Barreto says. "Are we doing more loans? Yes. Are we training more small businesses? Yes. Are we getting more federal contracts? Yes.And we've achieved historic numbers in all those areas."

Ironically, though a candidate no more, Sen. John Kerry may continue to have an impact on the debate. With his return to Washington, he will likely return to his position as ranking member of Senate's Committee on Small Business & Entrepreneurship. The committee is not traditionally one of the Senate's most influential, but it will give Kerry a forum to weigh in on the issues.

But for now, a large number of small-business owners appear to be squarely in the President's corner -- and are making sure their voices remain heard. "My biggest issues as a small-business owner are insurance costs, particularly healthcare,frivolous lawsuits, and a more business-friendly environment," says Bob Craft, owner of Jersey Rebuilding Service in Farmingdale, N.J. Help, they remain convinced, is on the way. Chambers is a reporter for BusinessWeek Online in New York.


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