Business owners warn against a fiscal cliff deal that sacrifices entitlements to save tax cuts

December 3, 2012

As lawmakers try to strike a deal to avert the “fiscal cliff,” many small business owners have expressed concerns about the impact of potential changes to the tax code. In particular, their attention has been focused on the fate of the Bush-era cuts and several temporary tax breaks intended to benefit companies on Main Street.

But with the precipice less than a month away, some small employers say those tax discussions are overshadowing an even greater threat to their businesses – cuts to entitlement programs.

“If I could talk to Congress, I would tell them to stay away from entitlements,” Mary Black, owner of a UPS franchise in Baton Rouge, La., said in an interview. “I’m willing to pay more taxes if that’s what’s needed to pull up the country, and my business would be okay. But cutting Medicare and Medicaid could have some really bad consequences for small businesses.”

Without government-backed insurance, Black would no longer be in business. During the summer of 2010, her 71-year-old husband fell ill with pneumonia and was hospitalized for more than four weeks, much of it in an intensive care unit. He recovered, but not before the medical bills soared to more than $130,000.

“Had it not been for Medicare, my business would have gone under,” Black said, noting that her business would have likely been the first thing sold to cover the expenses. “No question, I would have had to close the doors.”

In 2007, for which the most recent census data is available, one in eight small business owners in the United States was over the age of 65, and twice that many were less than a decade away from being eligible for Medicare. But the program and others like it could see cuts next year as Republican lawmakers push for Democratic concessions on entitlements in exchange for their approval to raise taxes for the wealthy.

“We understand that an end to the Bush tax cuts for the richest 2 percent could be traded off for cuts to Social Security, Medicaid, and Medicare,” a dozen small business owners who are part of the Main Street Alliance advocacy group recently wrote in a joint letter to leaders in Washington. “This constitutes a bad deal for small businesses – Congress should reject it.”

Jim Houser, owner of Hawthorne Auto Clinic in Portland, Ore., explained that the direct benefits for employers are only half of what’s at stake for small businesses. More importantly, he said, entitlement programs help maintain a strong base of consumers on which his and other small companies rely.

“A lot of people like to retire in Oregon, and I need my customers to be able to afford my services,” said Houser, who also serves on the national executive committee for MSA. “If suddenly, because of age or injury, they can’t even afford to own a car, let alone take care of it, that affects my business directly. People need to have a reliable source of income, especially after paying into those programs for so many years, in order for us to have customers.”

Houser, like Black, said he would gladly accept a tax increase if it meant lawmakers left entitlement programs alone. His company grew considerably during the Clinton era, when tax rates were higher for both the wealthy and middle class, and he said that even if those rates were restored across the board, it wouldn’t hurt his company – “not one bit.”

“If that’s what it takes to speed up the financial recovery and allow my customers to afford to replace their timing belts and replace their tires, then that would be fine with me,” he said.

What do you believe are the most important small business issues at stake in the fiscal cliff negotiations? Please share your take with us in the comments.

Follow J.D. Harrison and On Small Business on Twitter.

J.D. Harrison covers startups, small business and entrepreneurship, with a focus on public policy, and he manages the Post's On Small Business blog.
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