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Small Business Deregulation? Be Careful What You Wish For…

There is a wonderful line in a song from Stephen Sondheim’s musical, “Into the Woods”: “Careful the wish you make… Wishes come true, not free.”

A new global survey found larger small businesses and mid-sized companies are optimistic about their own and their industries’ prospects… but they’re less optimistic about the economy in general. The Future of Business Survey, a collaboration between Facebook, the World Bank and the Organisation for Economic Development (OECD), shared that U.S. businesses have a 56% personal confidence rate, and a 45% confidence in their industries; but only 22% are confident about the general economy. Solo entrepreneurs had much lower confidence in their prospects, perhaps due to impending challenges related to health care changes and reduced governmental small business assistance. A JPMorgan Chase Business Leaders Outlook survey also found businesses were generally optimistic about the national economy, but more cautious about the local and global economies, especially regarding trade issues.

Many small business owners liked the sound of promises made by Candidate Trump during the 2016 presidential campaign trail. Deregulation, tax cuts, and more sounded pretty sweet. But the realities of a Trump Administration may turn out to be very different for small businesses; what sounded good in theory may have very different consequences in practice. Here is a round-up of some issues small business owners should be aware of, and recommendations to consider in anticipation of an uncertain small business environment.

Small Business Loans Still Slow

Slow access to small business loans is not likely to improve under the new administration. Banks lean on SBA loan support from the Small Business Administration; traditionally, Republican administrations have been less supportive of SBA grants and spending. Small businesses have tested new online lending providers, but interest rates are steep, and the terms for when those may apply are vague. Regulation is needed to make a predatory lending environment less risky for small businesses. Oh, wait… this is a DE-regulatory administration. Small businesses will likely continue to have difficulties getting loans, so make sure you have a sufficient cash reserve in case of a cash flow crunch.

Tax Cuts? Not So Fast…

During the election campaign, we heard promises of a 15% tax cut for businesses; that promise was last edited on the Trump/Pence website to possibly apply only to C-Corps, businesses that retain profits in their business, as opposed to most small businesses which are sole proprietors, partnerships, LLCs and S-corps having “pass-through” profit models. A promise to eliminate tax loopholes could translate into lost tax deductions many small businesses have long relied on, like deducting for a company car, or carrying forward losses on the business. Now that the Trump “plan” (can one call a one-page bullet-pointed list a plan?) is on the table, new wrinkles must also be considered, many of which could negatively impact smaller businesses, depending on their structure. Take tax deductions now, buy that new car, or invest in new hardware and software, while business deductions are still available.

Overtime and Comp Time

The House just signed off on a bill (with the Orwellian name “Working Families Flexibility Act”) that appears to allow private sector workers the option of selecting time off in exchange for overtime pay. However, the bill would allow employers to control when that time is taken, and changes the current requirement that overtime be paid within the pay period it was earned. The bill allows employers up to 13 months to pay overtime or allow compensatory time off for hours earned over 40 per week. There is no provision for monitoring businesses for policy abuses, as when employees earn overtime compensation but are not paid, nor allowed to take time off because of “business disruption”… or, employers coercing employees to accept time off instead of pay. In other words, all of the flexibility is on the side of employers.

In the wake of the recent failed overtime rules change, small businesses need to manage employee concerns about fair compensation for extra hours worked. And they may soon have to wrestle with tracking and managing OT/comp time, should the Senate pass their own similar bill (currently in committee). President Trump says he will sign it if the bill arrives on his desk. How this may complicate small business management in states with their own OT/comp time rules is unclear. Stay abreast of the developments.

Small Business Side Effects of Health Care Repeal

One of the Affordable Care Act’s (ACA) original goals was to free people from employer-provided health coverage by making insurance portable. Many people left full-time jobs to start their own freelance or entrepreneurial businesses. If health care becomes unaffordable (and it already is for many), they can’t pass those costs along to clients or customers. Small business entrepreneurs now worry that they will have to find full-time employment again to get affordable insurance. Some are already job-hunting. This uncertainty effectively stifles entrepreneurship.

Female small business owners are also likely to be impacted by changes to health care, as they have historically faced challenges finding insurance plans that include maternity coverage. Even male sole proprietors have difficulties if they have pre-existing conditions. Consultants recommend that anyone who doesn’t have insurance should get covered now; existing policy holders are less likely to lose coverage when changes start kicking in.

What small business owners desire most is government policy that helps reduce overall health care costs. Concerns about ACA mandates aside, health care costs steadily increased over the past two decades. This inhibits business owners’ ability to plan for expansion, hire more people or just make a reasonable profit—health insurance is eating up capital. Many business owners didn’t like the initial failed AHCA bill much more than ACA; they wanted Congress to work harder to achieve genuine reform, not just a repeal of ACA.

The House of Representatives’ just-passed revised AHCA bill is projected to cause some 24 million currently insured people to lose coverage. It also wrests Federal funding from multiple groups currently covered, and from state exchanges, which is already causing a cascading exit by insurers from some troubled state exchanges, accelerating reduced choice and raising premiums in the process. Worse, it may cause new policies to offer less coverage and much higher co-pays… essentially making many people decide to again drop insurance and pray they don’t get sick. Some small businesses currently offering coverage to employees may be unable to afford to continue that benefit. Senate leaders have already said they’ll ditch the House Bill and take their time drafting one of their own. Let’s hope it proves better for small businesses.

What About Those Executive Orders?

Since assuming office in February, President Trump has signed multiple executive orders, including one requiring that two old regulations be repealed for every new one added. That sounds wonderful to those craving fewer governmental regulatory impediments to conducting business. But the President cannot make law… nor can he unmake it. Only Congress has the power to repeal existing laws and make new ones, and law-making—or unmaking—takes time.

Also, the deregulation executive order was written with enough wiggle room that “the director of OMB can “drive a truck through this order,” tax law expert Seth Perreta told Forbes. Repealing the ACA alone will require an enormous number of new regulations; and many regulations have hundreds of provisions, so some provisions may be eliminated—do they count as one regulation? It also remains to be seen whether the OMB will be able to manage the process by requiring Congress to stick to a two-for-one rule. Finally, if a regulation is part of a legal statute, agencies are obligated to enforce them until the statute is repealed or rewritten, by Congress or the courts.

The mills of God have nothing on the massive federal bureaucracy. Keep an eye on business news and watch Congressional activity. And before you support changes, take a hard look at the likely consequences of deregulation and tax cuts. Be vocal if you believe these changes will be bad for small businesses—bug your elected representatives and senators—and act now to take advantage of current benefits and deductions. In short, be optimistic and work your agency plan; but prepare your business for the just-in-case worst. Where government is concerned, it is wisest to be skeptical.

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