Political Uncertainty and Small Business

Today's Wall Street Journal features the front page article Political Uncertainty Puts Freeze Freeze on Small Businesses. 

The article points out that while the economy is the biggest issue facing small businesses, uncertainty about three public policy issues is resulting in many small businesses reducing staff, delaying expansion and cutting costs.

The three key policy issues listed as causing the uncertainty are:

1. Health care reform and the risk of much higher health care costs
2. The end of the Bush tax cuts and the risk of increased taxes in general
3. Potential costs associated with climate change legislation (cap and trade)

We're also hearing about these concerns in our interviews and discussions with small business owners.  Part of this is the publicity health care reform is getting.  Also contributing is most small business owners have a natural aversion to taxes and government intervention in the economy. 

Government's role in the U.S. is expanding and small business owners are much more focused on government policy than at any time in the recent past.  Policy makers need to be aware of this increased scrutiny and understand the impact of their debates and plans.

Comments

[John Tozzi]

Steve-

do you find that business owners you speak to are more worried about the prospect of government intervention than the actual costs they're likely to incur? Health care and energy costs are highly unpredictable, independent of health reform or cap-and-trade. Oil prices have fluctuated wildly from peak above $130/barrel to lows below $40/barrel in the past 15 months, but it had nothing to do with cap-and-trade.

I guess I'm wondering how much businesses respond to perceived uncertainty (because of press about health care, etc.) vs. the actual uncertainties they always face.

Thanks,

John

[Steve King]

John:

The major concern we are hearing is over increasing government intervention in the economy and the belief this will lead to higher taxes, increased deficits and more regulation.

People we talk to are mixed on health care reform. Most see the need, but fear potential deficit and tax impacts. Most also think health reform will not contain costs.

We really haven't heard much specifically on cap and trade, but we do hear a concern that climate change legislation will, again, result in higher taxes and more regulation.

I think the contentiousness and partisanship of the health care debate is creating a lot of the concern.

My guess is once the health care issue is settled, we will immediately move to another contentious battle on cap and trade.

Steve

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Markets weaken in the face of uncertainty, and the uncertainty in the health stocks markets rose late last week as the last House committee approved a bill that includes a somewhat watered down but still strong public option health plan. The Senate Finance Committee’s gang of three Democrats and three Republicans are trying to come up with a bill that would win at least 60 votes in the Senate.