Obama’s Budget, a Mixed Bag For Small Businesses

President Obama has sent his federal budget proposal to Congress – and in keeping with recent history, it’s highly unlikely lawmakers will approve it. But that’s not what’s important to someone running a small business, reported The Washington Post.

What’s important is to be prepared for what happens when Congress does approve a budget compromise that the president is willing to sign. Based on the blueprint Obama presented on Monday, the budget debate that will play out over the coming months could have a significant impact on your company – in at least three good ways, and three not-so-good ways.

First, the good.

Obama wants to spend money, and that could benefit thousands of small companies across the country. He’s proposing a $478 billion investment in infrastructure spending, and he wants to go 7 percent over previously agreed-upon sequestration caps to increase the defense budget by $38 billion. For businesses in these sectors, including construction firms and military contractors, more spending means more potential revenue.

It also opens up more opportunities for start-ups, minority owned businesses and other small firms looking for government work. The budget also calls for a 6 percent increase in funding for research and development, creating more opportunities for smaller biotech and research companies that collaborate with government agencies.

The budget also includes a tripling of the childcare tax credit, as well as a continuation of the president’s push for universal access to preschool, $1 billion in additional funding for Head Start and a previously announced program to help students go to community colleges. For businesses and non-profits that provide direct (education, transportation, meals, after-school care, textbooks) and indirect (cleaning, repairs, construction, technology) services to the education industry, the extra funding could deliver a welcome boost to their bottom lines.

In addition, the White House is continuing its push to fund seven more manufacturing institutes which partner with federal agencies, companies and the academic world to support and grow the manufacturing sector. At this point, few can argue that the president has taken a significant interest in helping U.S. manufacturers. Along with the Department of Commerce and the existing manufacturing institutes, White House officials have held competitions to boost innovation, provided funding, helped manufacturers find locations for their factories and provided other programs to support the industry. Countless small manufacturing firms have benefited, both directly and indirectly.

In short, the president’s budget has some very good stuff for small businesses. But it’s not all good.

First, there are the tax increases. Obama wants to increase capital gains taxes on those earning more than $500,000 per year, close what he calls the “trust fund loophole” and impose new taxes on current and future profits parked overseas by corporations. Most of the business owners I work with have seen their taxes rise significantly over the past few years and are frustrated with new tax-raising proposals. The more business owners are dis-incentivized to earn profits above certain thresholds, the less likely they will be to invest, grow and hire new people.

Our national debt is also being ignored. The president talks about “keeping deficits stable,” which means he’s targeting our annual deficits to be near half a trillion a year, along with a growing national debt – as long as they’re within an “acceptable” percentage of gross domestic product. This continues to unnerve members of the business community.

And calling an end to the sequester cuts “mindless austerity brought about through manufactured crisis” is troubling. The business people I know balance their budgets and do not carry excessive liabilities – not as long as they intend to stay in business in the long term. Continued spending that increases our national debt will likely only serve to further rattle financial markets, undermine economic growth, increase the likelihood of significant future austerity measures and, most importantly, hamper our government from raising funds when the need arises.

All of these issues continue to weigh heavily on the minds of the business owners with whom I work.

Finally, the budget again takes a swipe at big business and the wealthy. And for many small businesses, these are our best customers. It’s breaks for the middle class and an immediate 14 percent tax hike to corporations that have been legally keeping their profits overseas where tax rates are lower. Some of these are the same corporations that have provided us with services and products to improve our lives, employ hundreds of thousands of people and outsource billions of work to small businesses around the country.

Ultimately, what materialized today is a budget that focuses more on government spending, taxation and wealth redistribution and less on what most business owners want: A leaner, pro-growth, pro-business environment that rewards rather than penalizes companies for making money.

Say what you will about the president, but he’s run a relatively corruption-free administration and has been extremely clear about his priorities. And this budget has laid out the priorities for both his administration and his party. He has provided a clear blueprint for how he wants the government to impact our lives and businesses. The smart business owners I know don’t get emotional about this – they just make their plans accordingly and go about their business.

So, what’s next? The Republicans’ counter-proposal is expected sometime this spring. Stay tuned.