Will The GOP Deliver To Small Business? Now that Republicans hold both houses of Congress as well as the presidency, entrepreneurs expect a sympathetic government. Don't count on it.
(FORTUNE Small Business) – As we head into budget season, most small business owners expect the Republican Congress to support their interests. But Republicans in power don't always yield happy entrepreneurs. Yes, small business owners voted for George Bush in 2000 and are mostly glad they did. Just by repealing the ergonomics regulations imposed in Clinton's waning hours in office, Bush earned considerable gratitude. Add in the death of the death tax, easier access to federal procurement contracts, and the exemption from Superfund liability, and the record improves. Bush's January budget proposal only improves the picture. "They like what is going on," says Joseph Astrachan, a professor of family business and a research fellow at the Raymond Family Business Institute, a think tank. "There is a collective and continual sigh of relief that they didn't get Al Gore."
But most of this was low-hanging fruit. Now the going gets tougher--and so far, it's a tossup whether the Republicans will plump for their small-business allies or their big-business campaign contributors. After Sept. 11, for example, the administration was quick to bail out the large airlines--without requiring them to increase access to gates and slots for smaller ones, a refusal that has grounded many a promising startup. Then there were the steel tariffs. They pleased Big Steel but raised prices for small manufacturers.
Every quarter the National Federation of Independent Business asks owners what the "single most important problem" is for small business. Last time three of the top four answers were taxes, insurance, and competition from large business. On each of the three, a case can be made that the Bush administration and the GOP have at times been attentive to the needs of big businesses at the expense of small ones. Consider the following:
THE ALTERNATIVE MINIMUM TAX The 2001 tax cuts are one of the main reasons the small business lobby likes President Bush. The dirty little secret is that many entrepreneurs may not see those cuts for long, thanks to a little loophole in the code called the AMT. In 1969 the IRS revealed that 155 rich Americans had taken so many deductions that they owed no federal income taxes. In a fit of high dudgeon, Congress created the AMT, a tax that ensured that even the most tax-resistant, deduction-happy fat cats paid something. But the AMT is no longer just for plutocrats, thanks to demographics and some dizzying intricacies in the tax code.
Today two million people pay the AMT. In 2010 that number could be more than 35 million, according to Leonard Burman of the Urban Institute think tank--including almost all families with two children and making between $75,000 and $100,000 a year. In that year taxpayers subject to the AMT will lose two-thirds of the value ($88 billion) of the recent tax cuts, according to the Treasury Department.
The AMT will hit small business particularly hard. Around 90% of small outfits are taxed at the individual level, and small business owners tend to have lots of itemized deductions--exactly the demographic the AMT targets.
Remember all those speeches during the campaign condemning this attack on the middle class? Me neither. In fact, the GOP never considered repealing the individual AMT in the House's 2002 stimulus package, even though it pushed to repeal the corporate version of the tax. (The proposal didn't make the final cut.) Note to Republicans: Corporations aren't the only ones watching you.
FEDERAL PRISON INDUSTRIES Republicans are supposed to favor the free market, so why did GOP members of Congress fail to seize an opportunity to end a Depression-era monopoly?
FPI employs federal prisoners to make stuff like uniforms and furniture to sell to the federal government. Under "mandatory source" requirements that date back to 1934, federal agencies are required to buy products offered by FPI and must get permission from FPI if they wish to buy from the private sector. FPI has used its power to become the 39th-largest contractor to the federal government, ringing up almost $600 million in sales in 2001 alone.
A bill that required FPI to compete for contracts with the private sector passed the Republican-led House Judiciary on a voice vote, but the leadership didn't push it, and it never got to the Senate floor. An attempt was made to insert it into the 2003 defense authorization legislation, but a Republican on the House Armed Services Committee, Duncan Hunter, blocked it on grounds that the attachment was inappropriate.
Okay, FPI won't single-handedly slay entrepreneurship in America (and to be fair, defense contracts have been opened to competition on a temporary basis). But its repeal should be an easy win for a government genuinely committed to small business. Why hasn't it happened already?
ASSOCIATION HEALTH PLANS A majority of the 41 million Americans without health insurance are in families headed by someone working in a small business. The percentage of those who say that insurance was their top concern has hit record highs in the NFIB quarterly surveys. AHPs could help solve the problem, but no Republican has taken up the cause.
AHPs allow small businesses to group together through trade or industry associations to negotiate with insurers, spreading the cost across a larger pool. Last year the nonpartisan Congressional Budget Office estimated that AHPs would save small business an average of 13% on health insurance. There is broad tacit support in both the White House and among GOP members of Congress for AHPs. But while GOP candidates fell over themselves last year to promise a new prescription-drug benefit, no one has made an issue of AHPs.
AHPs could be a defining issue for the GOP. Big insurance companies hate the idea because they don't want the competition, but small businesses would welcome them. Who prevails will say a lot about where Republican priorities lie.