Small Business: Fiscal cliff would hurt entrepreneurs
BY AP Wire Service
Sunday, December 23, 2012
12/23/12 at 3:53 AM
NEW YORK (AP) - Dane Stangler has never owned a small business and doesn't expect to ever own one. But he's in a position to understand the challenges facing people who own small companies.
Stangler is the director of the Research & Policy department at the Ewing Marion Kaufmann Foundation. His job is to help the foundation determine how it can encourage and mentor entrepreneurs. His department conducts research and surveys and analyzes studies done by researchers at other institutions. So he is familiar with the issues that entrepreneurs and small businesses face.
Stangler spoke recently with The Associated Press as Congress was haggling about the fiscal cliff, the combination of billions of dollars in tax increases and budget cuts scheduled to go into effect Jan. 1. Economists have warned that if Congress doesn't prevent those tax increases and budget cuts from going into effect, the country will be at risk of going into a recession. And it's believed small businesses would suffer the most. Here are excerpts from the interview:
How important is government policy for small business owners?
If you are a business owner, your primary concerns probably have to do with your business. Policy impacts at the margins but I still think that for most entrepreneurs and for most business owners, their top concerns are still customer demand, because consumer spending is still making its way back.
When you do get into policy concerns that either are, could be, or should be at the top of a business owner's mind, I think tax policy is probably the biggest one because tax rates are about to go up and that's important because so many small business are taxed at personal income rates - like S corporations and sole proprietors.
The fiscal cliff is not only about the tax code. It's just the uncertainty. I know that's a catchall term that everyone uses, but it's for real this time. Everyone always says businesses hate to deal with uncertainty, and it kind of has a hollow ring to it because just the nature of running a business, you're always dealing with uncertainty. But at times like this, when politicians have manufactured a crisis, this is serious uncertainty, because no one knows how it's going to change. at hassle of dealing with all this.
Is there any long-term damage done by this kind of situation to small business?
There are probably very few people, especially among the community of entrepreneurs and business owners and potential entrepreneurs now, who would bet against the long-term strength of the U.S. economy.
We've obviously got challenges. But there's very few people who would bet against the U.S. in the long term. That is borne out by the fact that we continue to see a strong level of entrepreneurial activity - people starting business. That act is itself a signal of optimism and confidence in the U.S. and its long-term growth.
No matter how the cliff is resolved, it's expected that eventually, there will be billions of dollars in cuts to the federal budget. What will be the impact on small business?
It's probably finally dawning on lots of people, especially on the political right, what a large portion of the economy government spending is. In say, the 1960s, (a percentage of) government spending was what's called productive spending - the highway system, universities, infrastructure and entitlements. What could be classified as consumptive spending - entitlements (like Social Security) then were a small share.
Now it's radically different. Entitlements are a gigantic chunk and productive spending is really decreasing as a percentage of government spending. Nonetheless, that decreasing share of productive spending and even that consumptive spending on entitlements, that's still a massive chunk of the U.S. economy. And there are tons of U.S. businesses dependent on the government. It's not simply the case that government spending equates with waste. It has its own role to play in an innovative economy.
What kind of chance does a young company have to sell a product or service to the government in this climate?
There are still government programs that mandate that a certain percentage of government contracts have to be given to small business. Those percentages are probably not going to go away. But it does mean the dollar amount probably declines. It's not just a federal issue.
State government budgets have been seriously affected the last few years. They're getting healthier but they're certainly not back to where they could be or should be.
Original Print Headline: Cliff would hurt small businesses