We now face a make-or-break moment for the middle class and those trying to reach it. After decades of eroding middle-class security as those at the very top saw their incomes rise, it is time to construct an economy that is built to last. But the major roadblock ahead is facing the prospect of “sequestration“-or of the budget cuts that will be required to avoid it.
What is Sequestration?
Under the Budget Control Act of 2011 signed by President Obama as part of an agreement with Congress to resolve the debt-ceiling crisis, sequestration is the automatic reduction of spending which will trigger if the spending exceeds certain “caps” set out by the Act. Sequester originated when debates over deficit reduction saw the American government almost default on its debt payments. In order to avert that crisis, Democrats and Republicans agreed that unless they struck a deal on shrinking the country’s debt, cuts would be made to federal spending. The idea was that the prospect of cuts to social services would motivate the Democrats and hurting military spending would do the same for Republicans, issues important to respective parties.
Impact of Sequestration on Small Businesses
Many companies are already being affected by the cuts, particularly those working on federal contracts as government agencies have been holding back on signing new contracts. They’ve also held off approving funds for existing contracts — for example, multi-year contracts that require money to be approved periodically or in increments. This has caused uncertainty about what might happen and when once the cuts are made. Anxiety about budget cuts has been one reason why small businesses have been slow to hire in recent months. Economists warn that these cuts could push the country into another recession.
A study by researchers at George Mason University and the economic forecasting firm Chmura Economics and Analytics estimated that small businesses across the country would lose more than 950,000 jobs as a result of the budget cuts. More than 157,000 of those job losses would come from federal contractors, with the rest from subcontractors catering to contractors and their employees. The study was led by George Mason professor Stephen Fuller, who has studied the impact of public policy on the local economy.
It’s not known how many small businesses would be hurt, or how much revenue they would lose but according to The Small Business Administration there are about 130,000 small companies with federal contracts.
The 2014 budget proposes cutting nearly $10 million from the U.S. Small Business Administration’s signature Small Business Development Center program, and funneling about $40 million into new entrepreneurial development programs.
With over 12 million people unemployed, small business is critical to accelerating the economic recovery and creating the jobs America needs. According to the Bureau of Labor Statistics, small businesses have created about two out of every three jobs gained over the past 35 months and have added jobs in every quarter since early 2010. But since the recession began, U.S. commercial banks’ small business loan portfolios are down 17 percent. And loans under $100,000 have declined even more steeply, over 19 percent. During that same period, the Small Business Administration supported over $100 billion in new lending to over 218,000 small businesses. In better times considered the lender of last resort, the Small Business Administration, for many small businesses, has become the only option. The agency’s loans have become a lifeline for the franchise industry and other segments that weathered the recession better than most.
Limiting job creators’ access to capital at this critical point in the life of our nation’s economy is a profoundly bad idea. We are depending on our small businesses to grow and put our communities back to work. Eventually it rests with our elected leaders to put aside their risky, partisan gamesmanship and come together to pass legislation and enact the policy in a way that reflects our national needs and priorities.
What can be done?
It also doesn’t help small businesses or the economy as a whole when special tax treatment is given to hedge fund managers and Wall Street powerhouses. The controversial “carried interest loophole” lets finance titans pay a top tax rate of 20 percent on part of their earnings, only half of what they would pay at the top rate for normal wages and salaries.
The bottom line is that policymakers concerned about our economy should be leveling the playing field for small businesses, not perpetuating tax breaks for the big boys. The CBO estimates that ending subsidies to gas and oil companies would shore up $40 billion over 10 years and closing the carried interest loophole could raise $21 billion. Together, these measures would significantly offset cuts caused by the sequester.
However, finding short-term solutions to ongoing budget crises shouldn’t be the end goal. Small businesses want policymakers to resolve this problem for the long term so they and our economy have the sustained fiscal certainty they need to thrive.
The Time to Act is NOW
Alliance for U.S. India Business (AUSIB) is organizing a Government Contractors Session focusing on the “Sequestration, its short and long term impact on small business growth & regulatory relief” on Tuesday, July 23, 2013 at the Capitol Hill, Washington DC. The session will be graced by some of the most eminent speakers, the people who matter. They are:
• Congressman Sam Graves: Chairman, Small Business Subcommittee
• Jordan Valdes: Senior Advisor, SBA Office of International Trade
• CIO and OSDBU*s from some key agencies
• Congresswoman Yvette D. Clarke: Small Business and subcommittee of contracting and work force
• Senator James Risch: Small business and Entrepreneurship subcommittee
As our lawmakers debate, spending sequestration, healthcare, and immigration reform will have long-lasting impact on businesses across the country. In other words it will decide how quickly we can put our unemployed back to work. The AUSIB Small Business Forum will provide a unique insight on these key issues. The one-day session will feature lawmakers and agency officials who will be responsible for crafting and implementing programs that will determine how business interacts with government.
Do not miss this opportunity to get access and information that can provide you with an edge over your competition!
RSVP: firstname.lastname@example.org, Call: 202-276-7946.
*Office of Small and Disadvantaged Business Utilization