Small Business Regulations under a President Trump
Regardless of where you stand politically, the 2016 Presidential election was a rollercoaster. The year’s economic and political uncertainty has been deeply felt by small business owners, who rely on economic and political predictability in order to make long-term business operations plans. It’s hard to plan if small business regulations aren’t stable—if you don’t know how much tax you’ll owe, how much you’ll be paying for your employees in wages and benefits, or how many government contracts you can compete for.
Small business regulations and politics
During the 2016 election, many issues emerged both locally and nationally that will have a significant impact on the future of small business. On the local level, many cities voted on ballot issues which would affect small business regulations and operations. In San Francisco, for example, voters were asked to decide on issues as complex as a general sales tax increase (Proposition K), as well as more apparently mundane issues like the maintenance of street trees (Proposition E).
Perhaps reflecting the sentiment of small business owners nationwide, San Franciscans voted no on Proposition K, sending a clear message that increased taxes on small business were not acceptable. The more simple measure, Proposition E’s street tree maintenance measure, which asked voters to decide if the City of San Francisco should be responsible for maintaining all street trees previously maintained by residents and businesses, passed easily. With this vote as well, San Franciscans told lawmakers that small businesses are looking for fewer regulatory burdens.
Of course, San Francisco isn’t the only city where voters were asked to weigh in on business taxes. In notably liberal Oregon, voters were asked to decide on Measure 97, which called for a minimum tax of 2.5 percent on any corporate earnings over $25 million. Measure 97 was defeated with almost 60 percent of Oregonians voting no to the corporate tax. This might be another indicator that increased business regulations, even when only affecting corporations with enormous earnings, are still a tough sell for many Americans.
While these local issues played out simultaneously alongside the national election, most eyes remained on Washington, in anticipation of what the next President of the United States has planned for American small business.
During the Presidential campaign there was never much more than campaign rhetoric and short, bullet-point plans from Clinton or Trump when it came to small business. Now, there’s a lot more focus on President-elect Trump’s campaign plan (or lack thereof) for small business regulations. Foremost amongst topics that affect small business regulations are health care, minimum wage, taxes, and federal contracts.
Trump and health care
On the campaign trail, Trump repeatedly called for a full repeal of the Affordable Care Act (ACA). While this may have been great for campaign speeches, the reality of repealing the ACA is daunting, given that the ACA does in fact provide coverage for millions of small business owners and their employees, regardless of negative opinions on the law.
More importantly, it is beginning to appear that President-elect Trump’s calls to repeal the ACA were in fact just campaign rhetoric. Trump recently backpedalled on his promise to fully repeal the ACA. He has most recently said he will work actively to keep in place a key component of the ACA—the one that prevents insurers from denying coverage for pre-existing conditions. Even if Trump were to push for a repeal of the ACA, any legislative action remains a challenge. Repealing the ACA will require a Senate majority of 60 yes votes, and, with a Senate comprised of 52 Republicans and 48 Democrat, this is highly unlikely.
Since any legislative action on the ACA would likely take years to go into effect, small businesses can expect the healthcare marketplace and the ACA will remain in place for the immediate future. So, for small business owners concerned about planning for the future, the lengthy bureaucratic process of either a repeal or replacement of the ACA means any change will come with plenty of warning.
Trump and the minimum wage
While many localities, both state and city, have recently approved minimum wage increases independently, the last federal minimum wage increase occurred in 2009. For those states or cities, including New York City, San Francisco, Portland, and Seattle, who have already passed a minimum wage higher than the federal minimum wage, there is little expectation that a federal increase, if it were to happen, would affect business operations there.
Currently, the federal minimum wage stands at $7.25 per hour, and while Clinton had promised to raise the federal minimum wage, Trump has maintained a number of conflicting positions when it comes to minimum wage. He has stated that any increase to minimum wage should occur at the state or local level, and that he would not actively pursue a federal minimum wage increase. However, Trump also stated that the federal minimum wage should be increased to $10 per hour.
Trump may be correct that the issue of minimum wage is an issue that states have a particular interest in given that so many states and cities have pursued minimum wage increases. State ballot measures to increase the minimum wage have passed across the country, notably in New York and California. In the recent 2016 elections, voters in Arizona, Colorado, Washington, and Maine also approved ballot measures to increase the minimum wage.
While the minimum wage is a key regulation in business operations large or small, the likely future for small business owners is that any changes to minimum wage are going to occur at the city and state level. Trump is likely to leave minimum wage decisions to the states and not take any legislative or executive action to increase the federal minimum wage.
Trump and small business taxes
One of the most popular talking points of President-elect Trump’s campaign, especially with businesses, was his call to reduce middle-class tax burdens. Foremost in Trump’s tax plan has been the 15 percent corporate tax rate, seen by many in the business community, both large and small enterprises, as a boon to owners looking to increase retained earnings.
However, “the vast majority of all small businesses currently pay an effective tax rate below Trump’s 15 percent proposal,” according to a 2011 analysis by the Tax Policy Center. Furthermore, a key finding from the report that affects the majority of small business owners is that “nearly half of all tax filers reporting S corporations, 43 percent with partnerships, and 79 percent with sole proprietorships find themselves in the 15 percent tax bracket or below.”
Any reform to the effective tax rate must take into consideration the fact that most small businesses already pay less than the 15 percent rate Trump has called for. The greatest uncertainty emerges from the Trump camp itself, which has yet to clarify whether or not his proposed tax reforms will cap the rate at 15 percent—meaning that no small business will pay more than 15 percent—or, if it will be a flat rate of 15 percent—meaning that all businesses must pay 15 percent. In other words, a flat rate would actually increase corporate taxes for some small businesses.
Currently, there is a significant disconnect between Trump’s corporate tax plan and that of Congressional Republicans. The House GOP plan calls for a 25 percent capped corporate tax rate. That’s 10 percent higher than Trump’s proposal. Tax reform is nebulous enough at the best of times, and it’s more than likely that discussion of this aspect of small business regulation will continue over the next few years.
Since the vast majority of small businesses already fall under both Congressional Republicans’ 25 percent plan and Trump’s 15 percent plan, what this boils down to is the likelihood that there will be no effective change to the tax rate.
And, when either of these tax plans becomes law, there will be a net increase of trillions of dollars to the national debt unless substantial cuts are made in government spending.
Federal contracts for small business
Federal contracts represent about $400 billion of government spending. Small businesses, especially minority-owned and LGBT-owned businesses, have seen great expansions in opportunities for federal contracts. Unfortunately, though, women-owned businesses have in many ways been left behind. As we previously noted, “women small business owners make up 36 percent of all small business owners…evidence of the gains made by women entrepreneurs in a field traditionally dominated by men,” even if it’s not quite the 51 percent of all Americans that women represent (or even 47 percent of women in the workforce).
Given the growth of women-owned businesses, many groups like Women Impacting Public Policy, claim that President-elect Trump has a clear mandate to open up access to federal contract funding targeted at women-owned businesses in particular.
Unfortunately, unlike these other small business regulation challenges, the issue of more federal contracts for women-owned businesses is not an issue the President-elect has spoken on at all, either during his campaign or his transition. For small businesses, especially women-owned small business, there will need to be strong advocacy to ensure that the Trump administration includes women entrepreneurs at the table.
Since Trump hasn’t yet taken a stance on this issue, there is ample room for advocacy groups to shape the dialogue around access to federal opportunities for women-owned business. Of course, the flip side is that, even though it is an important issue affecting half the population, Trump made no promises about entitlement programs for women-owned businesses. So, there are no commitments to expanding these programs to which advocacy groups can hold the President-elect.
All told, the future of small business in a Trump presidency remains uncertain. Still, government is a slow moving beast at the best of times, and it’s unlikely that small business owners will be blindsided by any policy or legislative agendas that emerge during a Trump administration.