How Politics Affect the Small Business Sector

Small business and entrepreneurship drive America’s economy each year. Large numbers of small-scale commercial projects help increase economic growth as well as the number of jobs available to citizens. However, because many small businesses are often young, their foundations tend to be fragile and susceptible to mass changes that occur in government. When there are moments of political unrest, tax law changes, and regulatory complexity, small businesses can face a huge impact as they try to adjust to government change.

The state of politics directly affects the small business sector, which is why small business owners must keep their ears to the ground to avoid missing news that could directly affect them and force changes the way they run their business.

Small Businesses Driving U.S. Economy

Small business owners contribute to the vitality and increase in sales in particular areas of economic and socio-economic development. According to a study by the U.S. Chamber Foundation, more than 45 percent of U.S. gross domestic product is driven by the small business sector. Because of the competitive nature of the private sector, the dedication to achieving helps entrepreneurs spark innovative ideas that slowly transform the industry. Small businesses also help individuals achieve financial independence by placing them in charge of how they make their money, and allows them to do work that they feel passionate about.

Small business also help provide jobs to the majority of Americans. The U.S. chamber foundation states that in the American citizen sector, almost 50 percent of workers are employed by small for-profit businesses; and about 98 percent of businesses in the U.S. have fewer than 100 employees. Today, as well as in the past, small businesses have been the source of about 66 percent of all net new jobs; and these jobs contribute to the economy by creating job and income opportunities for people, which naturally helps push the economy forward.

As more of these businesses seek to adapt their business practices to current industry trends in order to keep up with the times and give consumers the best possible experience, they also help drive new technologies that are created for the private sector. Every year there are over 500,000 new small businesses created, which in turn creates millions of jobs. The value of the private sector to the U.S. economy cannot be understated; and yet, small businesses are often unable to keep up with the burdening regulations placed on them by the state and federal government each year.

Political Climate Impact on Small Businesses

Changes in tax and business regulations that occur due to the political climate at any given time can have a huge impact on businesses, and can even be the difference between their success or failure. Because small business are in the front lines of commerce, they’re also among the first in the economy to feel the effects of delayed growth or public policy that’s unfavorable to business owners. This requires business owners to be keenly aware of how the laws legislators pass will affect them, and it’s also why it’s important for them to be politically active for candidates who are aware of and prioritize the needs of small businesses.

However, it’s often best for small business owners to keep their political associations private rather than share them on behalf of the business — especially if those political views are particularly alienating to customers. It’s not uncommon for consumers to take issue with businesses who are openly supportive of political candidates or stances they disagree with, which could cause some customers to become biased against your company and even leave you bad reviews online. This could negatively impact your business as 88 percent of consumers are influenced by online reviews. Instead of openly criticizing political decisions that are affecting your business, try to be diplomatic about current events if speaking as the business owner.

During the partial government shutdown at the end of December 2018 that went into February 2019, almost one million government workers stopped receiving pay; and small businesses suffered greatly. The impact this unnecessary shutdown had on the economy was huge, costing Americans 1.5 billion dollars every single week until the government opened back up. The shutdown not only impacted existing businesses, it also impacted the hundreds of businesses that had planned to open up during this time.

Brooks Troxler, a small business owner in Charlotte, North Carolina, was planning to open a location for his small IT company in a commercial space that he had spent months researching and for which he had invested time and money completing appraisals, paperwork, and environmental assessments. As he was finishing up the final steps to buy his dream space, the government shutdown started, and caused his $550,000 loan to become stuck waiting for approval by the Small Business Administration, which stopped processing new loans on December 22nd.

Although businesses around the U.S. came together as best they could to support one another and the hundreds of thousands of furloughed government workers, these communities are still recovering from the impact of the shutdown. Government shutdowns are not uncommon, and their effects on small businesses, which depend on and are especially sensitive to government administrations, can often be heavy. Although the U.S. economy depends on small businesses, business owners are expected to figure out how to deal with these shutdowns themselves. After measuring the impact the partial government shutdown had on the economy, it has been widely criticized as a careless act by the current administration.

However, the Trump administration has attempted to promote small business growth through new policies. With a pro-business agenda, the administration has attempted to make policy changes that would loosen up tight employment regulations in order to create a more business-friendly political environment, eased banking regulations to help fund franchises, and use tax cuts to put money back into franchises. In theory, these policies should help make it easier for franchises to open up, grow, and be successful.

Small Business Owners Must Stay Informed

Government regulations on businesses are often outlined in a way that can make their implications difficult to understand. It is not uncommon for politicians to suggest that a new policy or regulation change will benefit businesses and procure economic growth, and then have that same policy affect businesses differently based on their business size or practices. How the small business owner perceives these regulations can sometimes be an opinion formed off incomplete information; or information with more conditions than they recognize.

In December 2017, the Tax Cuts and Jobs Act was signed into law. This law makes small reductions to income tax rates for most individual tax brackets and significantly reduces the income tax rate for corporations. Section 199A of the act includes a pass-through deduction of up to 20 percent of a businesses’ income, which effectively reduces business income taxes by 20 percent. This was done in hopes of helping businesses grow by allowing them to put the money they would be paying in taxes towards their business, which could help them expand and hire more employees or raise the wages of existing employees.

While in theory this deduction sounds great, economists suggest the tax cut is not benefiting people like it was expected to. Instead of raising wages, the average hourly compensation fell in the first quarter after the tax law was passed. Since December 2017, stock buybacks appear to have spiked, as businesses use their additional capital to pay off shareholders to the tune of more than 700 billion dollars in the first half of the year. While this money is helping successful for-profit business owners keep more money, without passing this money through to consumers, the economy will slow down and businesses will make fewer profits when consumers decrease their spending due to a lack of expendable income.

Small businesses are the heart of the U.S. economy; they help individuals achieve financial stability, they create jobs and they stimulate the economy. However, small businesses are largely affected throughout the year by the state of the political climate and the decisions of legislators. Small business owners must stay informed and be proactive in finding ways to handle the impact of new regulations that are created; and new business owners must work their way through the regulatory complexity of state and local governments in order to get their business off the ground. By doing so, the private sector will continue to thrive and help keep the U.S. economy moving forward.

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