Will Midterm Elections Mean Big Change for Small Biz?

By Jeff WuorioBusiness on Main

If Americans as a whole are jittery about the economy as they march to the polls in a few days, the small-business community is wrapped in full-blown angst.Whether that concern ultimately leads to election results that benefit small business, however, remains to be seen.A volatile economy inevitably focuses attention on small-business issues, particularly in an off-year election without the overriding emphasis on a presidential race."Small-business issues are always relevant when there are concerns about the economy, and there are grave concerns in this election cycle," says Stuart Rothenberg, publisher of The Rothenberg Political Report, a nonpartisan political newsletter.A down economy equals high anxiety for small businessWhat makes that relevance all the sharper is the devastating impact the struggling economy has had on small businesses. According to the U.S. Small Business Administration, more than half of the 763,000 jobs lost in the first two quarters of 2009 were from small firms. The Bureau of Labor Statistics estimates some 4.3 million businesses with 19 or fewer employees closed during 2008.Joel Shulman, professor of entrepreneurship at Babson College, points out that large corporations merely have to adjust to recessionary conditions. For small businesses, the problem can often boil down to a question of survival."There's high anxiety in the small-business community because they're subject to greater swings as a result of the economy," he says. "Big business lays off people in a down economy, then hires when things improve. Meanwhile, their small-business suppliers have gone out of business."

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The government/small-biz balancing actAnother troubling issue for the small-business community is that while would-be lawmakers aren't about to come out "against" small business — "everybody likes the mom-and-pop store around the corner that sells groceries," says Rothenberg — they haven’t shown any commitment to legislation that directly improves conditions for small businesses, either, according to some observers."Both parties pay lip service to the importance of small business. But neither party has targeted a different and lower tax treatment for all small businesses, or holiday tax and amnesty tax programs that can help during tough economic times," says George Munoz, former assistant secretary of the Treasury Department. "Small-business issues always get some attention, but besides the rhetoric, there is not much support of the kind that makes any difference."Moreover, benchmark economic issues for large corporations, such as taxes and perceived intrusive regulation, also hamper entrepreneurial spirit, according to small-business blogger Chris Hurn."When government 'penalizes' the profit motive for entrepreneurs by increasing their taxes while making their lives more onerous by increasing regulations, human nature is such that the risk-reward ratio becomes skewed," he says. "Fewer people are willing to innovate and start new businesses, or try to grow and hire more people for existing businesses, when this occurs."Lowering small-business taxes may be only a partial solution. Munoz suggests the small-business community will benefit more from legislation that bolsters the economy's capacity to compete with China, India and other fast-growing overseas competitors.The outlook for small business in America"Small-business owners will have a dim future if America loses its competitiveness in a global economy," Munoz says. "It's not just about tax cuts. Small-business owners should support candidates who support policies in education, exports and manufacturing that will assure our global competitiveness."While conventional thinking holds that significant Republican gains in the upcoming election could lead to the relaxed regulatory environment that many small businesses want, Hurn worries about drastic change as much as no change at all."The extreme on one side would further the growth of regulations and taxation, while the extreme on the other would do things like un-fund the SBA," he says. "Like in most things, a middle ground is the best course of action. If reasonable heads prevail, then we may not see tax increases and we may see bad legislation and regulations get rolled back."But with little precedent on which to base such confidence, it’s still unclear where the hope of small business lies in this election. One possibility, even if palpable economic improvement might still be far off, is that just the suggestion of a major political shift could hasten recovery by bolstering confidence.Gregg Fairbrothers, adjunct professor of business administration at the Tuck School of Business at Dartmouth College, explains this phenomenon: "Will we feel an instantaneous change on the Wednesday morning after the election? No. But the psychology of confidence — or lack of confidence — is probably as tangible as any particular political act that might come out of the next Congress."Jeff Wuorio is a veteran freelance writer and author based in southern Maine. He writes about small-business management, marketing and technology issues.

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