Recently, small business owners took to the streets to protest government policies in France. French Prime Minister Manuel Valls then announced reforms to boost the economy. They include increasing the number of businesses operating on Sundays and opening up regulated sectors to competition. The result: thousands of opponents demonstrated in Paris, saying the measures go against the political beliefs of the country’s left-wing government.
Small business owners in the United States haven’t taken to the streets but they do have issues going into 2015 – including, most importantly, the possibility of lower taxes.
“Tax reform has been talked about. President Obama has signaled some support for tax relief for corporations and small businesses, and there seems to be bipartisan interest”, said Amanda Austin, vice president of public policy for the National Federation of Independent Business.
That’s because most US businesses are organized as sole proprietors, so they pay individual income taxes rather than the corporate tax.
Janemarie Mulvey, a former chief economist for the Small Business Administration’s Office of Advocacy, oversaw a study on the various tax provisions that impact small businesses. She says small businesses have been forgotten in the massive congressional battles over tax rates for big corporations.
“While a lot of the debate about differential tax rates for businesses internationally has referred to the US corporate tax rate, which is higher in the US compared to other countries generally, small businesses are taxed at the individual level and thus individual tax provisions impacting their business are more important,” Mulvaney says.
The key priority: the distinction between whether workers are on the job 30 hours or 40 hours, which makes a big difference in benefits coverage.
The 30-hour definition for the employer-shared responsibility provision has led to two problems. Most employers that provide coverage to their full-time employees working 40 or more hours a week are less likely to provide coverage to employees working 30 to 39 hours, thus increasing potential penalties.
Making the definition of full-time consistent at 40 hours per week would save small businesses approximately $38.6bn in penalties over 10 years, according to estimates by the Congressional Budget Office.
And measuring who is full-time using the 30-hour definition and who is not for purposes of the penalty has led to a confusing and convoluted look-back measurement process for employers.
As for the Affordable Care Act (ACA), Elliot Richardson, the CEO of Chicago-based Small Business Advocacy Council, said:
There has been much noise regarding whether or not the ACA is good for small businesses. Health insurance rates have gone up dramatically in Illinois in the past 10 years due to a lack of competition it relates to options. We hope that by bringing a health insurance co-op option, there will be a player in the game that will help to stabilize health instance. People will argue that there should be universal health coverage but that isn’t on the table. Blue Cross/Blue Shield has been the dominant player in Chicago. If you believe in the free market, you can’t have that if one company is writing all of the policies, and Blue Cross wrote about 90% of the policies last year. The co-op has rates that are competitive in the year since it was formed. A small business can’t compete in the marketplace with a large business when they can’t afford to give quality healthcare.
“The state of Illinois is flagrantly anti-small business, even though 56% of its residents either own, or work for, a small business,” said Steve Banke, CEO of 3Points LLC, a computer network consulting firm and chairman of the Small Business Advocacy Council’s healthcare committee.
Banke is exercised about Illinois’ approach:
Illinois has the largest number of taxing bodies in the nation (almost 7,000), making it one of the largest bureaucratic institutions in the history of mankind. This labyrinth of government entities, and their associated tax laws and regulations, make it impossible for any small business to effectively comply. This means that opening a business in Illinois is a super-high-risk proposition just because of the regulatory environment in the state. To add insult to injury, Illinois charges the highest fees in the nation to open and maintain a small business.
Mulvey recommends excluding firms with 50 to 99 employees from the ACA’s employer shared-responsibility penalties and scrapping the law’s multiple, conflicting definitions of full-time employees in favor of a single, uniform standard.
“While the ACA provides tax breaks and new insurance marketplaces that could potentially benefit small businesses, there also are increased administrative burdens – including new Internal Revenue Service (IRS) reporting requirements and insurance coverage mandates, coupled with potential employer penalties for some companies that fail to offer adequate or affordable health insurance coverage.”
With Republicans taking control of both chambers of Congress in January but short of enough votes to overturn a presidential veto, the ACA won’t likely be repealed. But legislative changes to the law are a virtual certainty.
“Implementation of key parts of the law over the next two years presents crucial challenges for small businesses, and the complexity of the law’s regulations may well have the effect of increasing the administrative burden to small businesses,” said Dr Mulvey.
To alleviate those burdens, she would exclude firms with 50 to 99 full-time employees from the employer shared-responsibility penalty. These firms face a catch-22: they are penalized if they fail to provide “adequate and affordable coverage” – yet the insurance requirements for them are more stringent in terms of coverage mandates and premium restrictions than for their larger counterparts.
“In addition, firms subject to the employer shared-responsibility penalty must also report to the IRS the details of their insurance coverage for each and every full-time worker,” said Mulvey. “Classifying these firms properly as small businesses rather than as ‘applicable large employers’ would not only eliminate their exposure to potential penalties, but would significantly reduce their administrative burdens with respect to IRS reporting requirements.”
“Employers are concerned about a federal minimum wage threshold,” said Austin of the NFIB. “The federal minimum wage dictates where the states are going to be and the states have the right to increase theirs. Employers would be concerned about any significant increase in the federal minimum wage.”
And Chicago (as well as Seattle) just enacted a higher minimum wage law.
“Our organization doesn’t have an official position on the minimum wage, but there are folks who are troubled by the fact that the Chicago minimum wage differs from the state minimum,” said Richardson.
On a positive note, the NFIB Small Business Optimism Index climbed from 96.1 in October to 98.1 in November. It’s the highest level of recorded optimism since the start of 2007. Expectations for business conditions six months out rose 16%, while expectations for real sales volumes rose 5%.
Small business owners in the US are more optimistic now than at any time since early 2008, according to the latest Wells Fargo/Gallup Small Business Index. The overall score rose to 58 in November, up from 49 in July. The index was last this high in the first quarter of 2008, when it was at 83.
Despite the challenges, it seems that optimism is very firmly back in place.