It’s 2015 and small businesses nationwide are hoping it will usher in growth and prosperity. Whether the current political climate will help or hinder small business remains to be seen, but one thing’s for sure: The recent power shift in Washington introduces a new set of conditions and possibilities that every small business owner should consider.
In the graphic below, Direct Capital has illustrated a number of factors that could change the landscape of American small business dramatically. In broad terms, the last three decades have seen consistent (if limited) growth in small business jobs. But come 2015, newly powerful Republican legislators will face a number of policy challenges that might threaten that trend.
It’s long been said only two things are certain: death and taxes. Add to that list: political debate about taxes. While Democrats find themselves in the minority in both houses this year, they’re unlikely to cede the ground necessary for the House and Senate to pass comprehensive Federal Income Tax reform. Health care legislation and its ramifications for small businesses seem equally likely to spark cross-aisle enmity. What can small business owners expect in the wake of President Obama’s executive action on immigration, and how will Republicans respond? Will the success of state ballot initiatives to raise the minimum wage mean more trouble for business owners already struggling to pay employees? And the bigger question: How much regulation is too much when it comes to supporting small business in America?
Below we’ve outlined the likely outcomes on these issues, as well as steps small business owners can take to achieve growth in 2015 and beyond.
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Full Infographic Text:
The State of Small Businesses 2015
The November 2014 power shift in Congress may give small businesses improved support in the areas of labor, regulations, and taxes; however, sweeping changes are not expected. Overall, the positive effects are expected to outweigh the negatives for small business owners in the new year.
Over the past 30 years, growth (or contraction) of the American small business landscape has maintained progress, as shown by the data from the Bureau of Labor Statistics (BLS) charts below:[Illustration: Chart with 1992 Small Business Growth indicators for Gains, Losses, and percent difference by number of employees per business] [Illustration: Chart with 2002 Small Business Growth indicators for Gains, Losses, and percent difference by number of employees per business] [Illustration: Chart with 2012 Small Business Growth indicators for Gains, Losses, and percent difference by number of employees per business]
IS THAT PROGRESS GOING TO HALT IN 2015?
Here’s what to expect from the new congress, and how it will affect small businesses:
Due to ongoing party conflicts, an overhaul to the federal income tax is unlikely. That means many individual business owners will remain in a higher tax bracket than some larger corporations.
There may be a silver-lining, however, with legislation called “America’s Small Business Tax Relief.” It’s an extension of a deduction that will allow small businesses to deduct up-front, rather than depreciate the costs of some equipment.
The deduction for 2014 is $25,000, but that amount is expected to be increased by Dec. 31 (the deduction in 2013 was $500,000).
- Other notable tax-related legislative changes:
Republicans will be spearheading other key tax bills as well, including:
- American Research and Competitiveness Act of 2014. Establishes a 20% tax rate for research credit, which will be permanent.
- S Corporation Permanent Tax Relief. This legislation will make permanent several tax reduction changes available to S corporations, which is the predominant business entity used by smaller companies.
According to Todd McCracken, president of the National Small Business Association (NSBA), Republicans will work to change the definition of a full-time employee who qualifies for coverage, which is currently defined in the Affordable Care Act (ACA) as any worker who is employed at least 30 hours per week. Under the current law, any worker considered a full-time employee must be offered affordable coverage if a business is expected to have 100+ employees in 2015.
Expect Republicans to ease these requirements through the Jobs for America Act. Designed to exempt small business from costs of the (ACA), this bill will redefine “full-time employee” as an employee who is employed on average at least 40 hours per week.
Republicans oppose what they believe to be a general increase in regulations that negatively affect small business. Increases in regulations means less flexibility and more “red tape”
for small businesses.
According to Forbes, government rules that impact small business have jumped in the past several years. In fact, the number of rules since 2010 under President Obama that affect small business has regularly exceeded 800. The last time rules in this category exceeded 800 annually was in 2003.
Now that Republicans are better positioned for control, expect them to overrule such regulations, like those with stringent conditions such as those from the Environmental Protection Agency.
Additionally, the Regulatory Flexibility Improvements Act will require initial and final regulatory flexibility analyses to describe alternatives for a proposed government rule to minimize adverse economic impact or to maximize beneficial economic impact for small businesses.
Labor markets continue to be described as “sloshy” at best. Many small business owners are hard-pressed to find skilled labor workers in the U.S., which is why a majority currently propose visa program expansion.
President Obama recently announced executive action in immigration reform to help some undocumented immigrants stay in the country, which could help small businesses keep their current labor and/or broaden the labor pool. The plan is comprised of three parts: border security, opportunities for highly-skilled immigrants, and his strategy to allow roughly five million undocumented immigrants to stay in the country and not face deportation.
Republican response to the President’s executive action has been explosive, with 17 states suing the Federal government and immigration agencies. Don’t expect Congress to pass any comprehensive legislation on immigration until the dust settles from President Obama’s recent reform.
MINIMUM WAGE INCREASES
Republicans have strongly opposed Obama’s call for a minimum wage increase from $7.25/hr. to $10.10/hr., which would further squeeze the budgets of small business owners who are already struggling to make payroll. However, voters in five (usually conservative) states cast ballots in favor of the increase: Alaska, Arkansas, Nebraska, and South Dakota.
According to Holly Sklar, director of the advocacy group Business for a Fair Minimum Wage, the success of referendums and legislative votes to raise the minimum in 10 other states this year may encourage Republicans to support Obama’s higher federal minimum. They may also be inclined to raise the minimum as the 2016 election approaches.
- When adjusted for inflation, the 2009 federal minimum was still less than the minimum wage through most of the period from 1961 to 1981.
- The last federal minimum wage raise increase came on July 24, 2009, to $7.25/hr. This was the final step of a three-step increase passed in 2007 when the minimum wage was set at $5.15/hr. In this last step, about 4.5 million workers received a raise that provided an additional $1.6 billion annually in increased wages.
Overall, it looks as if small businesses will definitely incur more expenses annually to maintain the status quo in 2015. Just how much of an expense is to be determined.
While Congress and the government duke it out on these issues, here are some steps you can take now:
- Prepare solutions to “what if?” scenarios. What if immigration laws don’t shake out in your favor? What if the minimum wage increases? Prepare your potential solutions now so you can quickly react later. [Illustration: Business owner asking “What if?”]
- Survey the current business environment and observe customer trends. This will allow you to identify any potential issues that could impact future growth plans. Maybe your business needs a better location or its machines need to be upgraded to increase quality and output. [Illustration: Businesses and owners, magnifying glass and up and down arrows to signify a review of current businesses in the area]
- Adjust your goals as necessary. Create your goals for growth based on what you know now. When the issues at hand have been established, you can later modify those goals to suit what affects your business. [Illustration: checklist of things that need to get done, and crossed out when it is no longer applicable]
- Secure funding for growth or help getting started. Determine what amount of funding your business needs to grow to its full potential, and reach out to secure a low-interest loan— which can be done easily online in minutes. [Illustration: Business owner with a bag of cash and an approval letter]
There are many reasons obtaining a small business loan could help fuel growth during the impending transition, such as: [Illustrations: Shields with dollar signs on them]
- Real estate acquisitions
- Buying new equipment
- Freeing up working capital
- Expanding into franchises
Don’t wait for a decision to affect your business—take action now and secure your business’ future growth.[Image: Direct Capital a CIT Company Logo]
- Rosenberg, Joyce. “What small businesses can expect from the new congress.” Top Tech News. November 13, 2014. http://www.toptechnews.com/article/index.php?story_id=020002AE3CIG
- Economic Policy Institute. “Fact sheet for 2009 minimum wage increase—Minimum Wage Issue Guide.” July 20, 2009. http://www.epi.org/publication/mwig_fact_sheet/
- Evans, Michael. “What Will Republican Control Of The Senate Mean For Small Businesses?” Forbes. November 6, 2014. http://www.forbes.com/sites/allbusiness/2014/11/06/what-will-republican-control-of-the-senate-mean-for-small-businesses/
- Crews, Clyde. “Small Business Regulations Surge Under Obama.” Forbes. February 6, 2013. http://www.forbes.com/sites/waynecrews/2013/02/06/small-business-regulations-surge-under-obama/
- Caesar, Chris & Levenson, Eric. “President Obama Announces Executive Action on Immigration Reform.” November 20, 2014. http://www.boston.com/news/politics/2014/11/20/president-obama-announces-executive-action-immigration-reform/y4q8ZD3wC46ReYV3FsvSrI/story.html
- Hennessy-Fiske, Molly. “17 States Sue to Stop Obama’s Immigration Plan.” December 3, 2014. http://www.latimes.com/nation/nationnow/la-na-texas-immigration-lawsuit-20141203-story.html