How the Debt Deal Will Affect Your Business

2 min read • Aug 04, 2011 • Dan Bischoff

Congress and the White House finally shook hands (although begrudgingly) and saved the United States from defaulting.

However, the political bickering is still running rampant, and small business is likely facing the fallout.

Senate Majority Leader Harry Reid (D-Nev.) told the Senate on Monday:

“People on the right are upset. People on the left are upset. People in the middle are upset.”

Inc. reported that the deal has three main components, neither of which seem to go out of the way to help small businesses across the country:

  • It immediately raises the debt ceiling
  • Includes about $2.1 trillion in spending cuts over 10 years
  • Creates a special Congressional committee to come up with long-term deficit-reduction suggestions by Thanksgiving

But did Congress forget about small business?

We hear out of the mouths of economists, politicians and CEOs that small businesses are the job generators in our country. Despite that, those in Washington seem to value posturing over the needs of the business owner, and in turn, the economy. John Arensmyer, CEO of Small Business Advisor, an advocacy group, told Inc.:

“This is not the deal that we have wanted to see. It’s good only because it prevents a catastrophic default, but they missed a big opportunity here to really make some reforms that could benefit small businesses and everyone else.”

Experts say the biggest missed issue was reforming taxes. That hot-button was put on the shelf, and will likely be debated sometime in the future.

“Small businesses just don’t benefit at all from tax breaks on in the upper bracket, and they don’t benefit from large corporate loop holes,” Arensmyer told Inc.

Charles Green, the author of “The SBA Loan Book,” says the immediate future of small business has been damaged.

“Most small businesses buy from and sell to larger businesses,” he told Inc. “And big businesses make plans months in advance based on what’s going on in the present and what they think will happen. So they’ve already made decisions about production levels, prices, etc. for the near future. The smaller businesses will feel the ripple effect.”

Uncertainty may cripple some businesses

Even though the deal was done, the political grandstanding has created a lack of faith in Congress and an uncertainty for the future.

In July, Barry Sloane, CEO of Newtek Business Services, told CNBC that:

“Uncertainty is the biggest problem in the lending environment for small business. Tax rates? Deficit Reduction? Obamacare and over all levels of consumer spending are dramatically concerning small and independent business owners”

None of these issues were solved by the debt deal. This may also negatively affect hiring.

“Uncertainty over the debt ceiling is a huge issue because small businesses believe the government will confiscate their wealth through higher taxes,” Sloane told CNBC. “Estate tax, dividend income, personnel tax rate or depreciation changes in the tax law. Most small business strongly favor deficit reduction through spending cuts, not tax increases. They are reluctant to hire until uncertainty over their income tax rates is more certain to make sure they have the cash flow to pay for the new hire.”

Your Turn

With the debt deal passed, how will it affect your business?

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Dan Bischoff