Sequestration breakdown: What $1.2 trillion looks like in small business terms


If the sequester continues as scheduled, the government will cut enough money out of the federal budget to start 40 million new businesses. (bigstockphoto)
February 22, 2013

Congress and the administration are down to their final week to strike a deal to avoid or delay the automatic budget cuts known as “sequestration,” and with both parties already pointing fingers rather than working on a compromise, the cutbacks appear inevitable. Should neither side budge, the federal government on March 1 must start making cuts that will slash spending over the next decade by $1.2 trillion.

That’s a lot of money—but just how much exactly?

In an effort to put the figure in context, we crunched some numbers from the Internal Revenue Service, U.S. Census Bureau, Small Business Administration and several other sources of data for companies on Main Street. Here’s what we discovered about the cost of sequestration.

In small business terms, $1.2 trillion equals:

• The capital needed to start 40 million new businesses (average cost of $30,000).

You’ve heard the word “sequester” mentioned by politicians a lot lately. The Washington Post’s Ed O’Keefe explains what the term means, and why it matters. (The Washington Post)

• More than enough to cover the payrolls for every small business in the country for six months (total $2.1 trillion annually).

• Enough money for every small employer in the country to add five new $40,000-a-year employees for a full year (6 million small employers).

• More than the combined taxes to be paid this year by every filer under the IRS’s Small Business and Self-Employed division (about 40 percent of $2.9 trillion, or $1.16 trillion).

• Triple the total amount of venture capital investments made so far this century ($423 billion since 2000).

• The capital you would need to make 150,000 start-up investments, based on the average venture capital deal during that period ($8.1 million).

• More than the total amount of lending to small businesses in the first half of 2012 ($1.17 trillion) and four decades worth of SBA-backed loans (about $30 billion annually).

• The cost of covering the health insurance premium for every small business employee in the country for five months (average cost of $4,260 for individual coverage).

• More than three times the total amount of goods and services exported by small and mid-sized businesses each year ($380 billion).

• Enough money to power the SBA on its current budget for more than a thousand years (2013 budget request is $948 million).

No matter how you spin it, the spending cuts looming at the end of next week would be historic. But perhaps all business owners really need to know about $1.2 trillion is that it may be enough to send the economy back into recession, which would be a nightmare for companies of every size.

Follow On Small Business and J.D. Harrison .

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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