By Joyce M. Rosenberg, Associated Press
Dane Stangler is in a
position to understand the challenges facing people who own small companies.
Stangler is the director of the Research & Policy department at the Ewing Marion Kauffman Foundation. His job is to help the foundation determine how it can encourage and mentor entrepreneurs. His department conducts research and surveys and analyzes studies done by researchers at other institutions. So he is familiar with the issues that entrepreneurs and small businesses face.
The Kauffman foundation was started in the mid-1960s by Ewing Marion Kauffman, founder of the pharmaceutical firm Marion Laboratories and baseball’s Kansas City Royals. Part of the foundation’s mission is to foster entrepreneurship, something it does through grants and research.
The foundation draws what Stangler calls a blurry distinction between entrepreneurs, the people who start companies or run young enterprises, and small businesses, which Kauffman sees as companies that have made it past their early years. Some small business issues, like income taxes, aren’t a problem for entrepreneurs whose businesses may not be making a profit, Stangler notes. But small companies of all sizes face some of the same problems — the weak economy and the prospect of federal budget cuts.
Stangler spoke recently with The Associated Press as Congress was haggling about the fiscal cliff. Economists have warned that if Congress doesn’t prevent tax increases and budget cuts from going into effect, the country will be at risk of going into a recession. And it’s believed that small businesses would suffer the most.
Q. How important is government policy for small business owners?
A. If you are a business owner, your primary concerns probably have to do with your business. Policy impacts at the margins but I still think that for most entrepreneurs and for most business owners, their top concerns are still customer demand, because consumer spending is still making its way back. Households are still deleveraging. Policy is very important, but getting sales, getting customers, running your business, dealing with employees, probably still dominate the daily thinking of a lot of business owners. Policy obviously impacts that, but not always centrally.
When you do get into policy concerns that either are, could be, or should be at the top of a business owner’s mind, I think tax policy is probably the biggest one because tax rates are about to go up and that’s important because so many small business are taxed at personal income rates –- like S corporations and sole proprietors.
There’s a lot of disagreement in the literature, both academic and nonacademic research, about the impact of tax rates on business owners. We worked with a company called Thumbtack.com on a survey of 6,000 businesses and individuals. One of the things our researchers dove into was the impact of taxes. And we released a paper in October that said it’s not necessarily the level of taxes (that’s the problem). That doesn’t matter, because no one expects to pay no tax. It’s the sheer complexity of dealing with taxes. So it’s not necessarily the rate, it’s just the burden.
Q. What is the biggest issue with the fiscal cliff?
A. The fiscal cliff is not only about the tax code. It’s just the uncertainty. I know that’s a catchall term that everyone uses, but it’s for real this time. Everyone always says businesses hate to deal with uncertainty, and it kind of has a hollow ring to it because just the nature of running a business, you’re always dealing with uncertainty. But at times like this, when politicians have manufactured a crisis, this is serious uncertainty, because no one knows how it’s going to change. If we do go over the cliff, we’re sort of going to get whipsawed because the Internal Revenue Service is preparing for the government going over the cliff, putting in place all the new tax forms, and then, six weeks later, when they reach a deal, we’re going back to the way things were. That uncertainty and that expectation of being whipsawed back or forth is really a serious issue.
Q. Is there any long-term damage done by this kind of situation to small business?
A. There’s very few people who would bet against the U.S. in the long term.
Q. No matter how the cliff is resolved, it’s expected that eventually, there will be billions of****dollars in cuts to the federal budget? What will be the impact on small business?
A. It’s probably finally dawning on lots of people, especially on the political right, what a large portion of the economy government spending is. In say, the 1960s, (a percentage of) government spending was what’s called productive spending – the highway system, universities, infrastructure and entitlements. What could be classified as consumptive spending – entitlements (like Social Security) then were a small share. Now it’s radically different. Entitlements are a gigantic chunk and productive spending is really decreasing as a percentage. Nonetheless, that decreasing share of productive spending and even that consumptive spending on entitlements, that’s still a massive chunk of the U.S. economy. And there are tons of U.S. businesses dependent on the government.
Inc. magazine every year does a list of the fastest growing companies. Government services dominated the list in the last decade. Washington D.C. is the top metro area for Inc. 500 companies since 2000. If a substantial of that is cut, you’ll have a massive effect not just on small businesses, but innovative, fast-growing companies. History certainly shows that government spending has certainly played a very important role in innovation and economic growth. National Institutes of Health-funded research at universities is hugely important. Small Business Innovation Research grants at federal agencies are hugely important.