What business owners should know about the new budget deal in Congress

Correction: An earlier version of this story incorrectly stated the amount of the national debt. This version has been corrected.

Senate Budget Committee chairman Patty Murray (D-Wash.) and House Budget Committee chairman Paul Ryan (R-Wis.) announced that they have reached a bipartisan agreement to prevent a government shutdown in January.
December 10, 2013

Nothing like the holidays to bring even the most bitter political rivals together around a federal budget deal. Or, perhaps more likely, it’s the still-fresh memory of that costly government shutdown earlier this fall.

In either case, a bipartisan group of lawmakers has struck what (if passed) would be the first long-term budget agreement since 2011. Headed by Senate Budget Committee Chairman Patty Murray (D-Wash.) and her counterpart in the House, Rep. Paul Ryan (R-Wis.), the committee’s deal is a modest one, far short of the “grand bargain” policymakers set their sights on earlier this year.

Still, the accord gives an exceptionally gridlocked Congress an opportunity to close the year with a modest victory. Moreover, it would provide some clarity to entrepreneurs and small business owners around the country, who are facing the prospect of another short-term spending solution, or worse, another government shutdown.

Here’s a look at the key components of the deal and what it would mean for business owners in 2014.

Sequestration cuts would shrink, but they wouldn’t disappear

As part of the across-the-board spending cuts known as the sequester, discretionary spending by the federal government was slated to drop this year from $986 billion to $967 billion. Instead, the Ryan-Murray deal would lift that number to around $1 trillion, and it would give agencies more flexibility in deciding where to cut back.

More federal spending is music to the ears of small government contractors, who have been competing for a smaller number of awards as a result of sequestration. And as a result, many have seen large contractors start vying for smaller projects, too, making it even more challenging to keep the revenue streams flowing.

So while the committee fell short of replacing the sequester cuts entirely, small firms in the government’s supply chain could at least be in for a more promising year in 2014.

New revenue, without new taxes

As Ezra Klein explains, Murray and Ryan want to replace some of those sequester cuts with additional revenue from other areas — but without increasing taxes. Instead, they are looking at auctioning off government assets, raising travel fees and restructuring the pension plans for some federal workers.

That means no hiking up the individual rate, which would have raised taxes on “pass-through” firms like partnerships and sole proprietorships, or the corporate rate, which would have hit a smaller but still significant number of small corporations.

On the other hand, some had hoped the budget committee would derive some of its additional revenues by closing corporate tax loopholes, which are more often exploited by large businesses with sophisticated accounting teams than small mom-and-pop shops. Small employers have long complained the loopholes allow their big competitors to pay a smaller share of their earnings to Uncle Sam.

Washington Post economic columnist Neil Irwin tells you everything you need to know about the new budget deal — in two minutes.

Sen. Angus King (I-Maine) last month offered a proposal to the committee that would have eliminated some of those loopholes in exchange for a reduction in the corporate rate — but that did not make it into the final deal.

Debt limit debate would be pushed down the road

Somewhat surprisingly, the deal would do nothing to reign in the nation’s ballooning debt, which was one of the shared goals Ryan and Murray publicly expressed when they launched talks in late October. Now at $17.3 trillion, the national debt is at its highest percentage of GDP since World War II.

The country is currently operating on a temporary debt deal that will expire in early February. So while the budget would avert another government shutdown, it would not steer us clear of another debt ceiling showdown early next year. At the very least, analysts say that would take attention away from other matters in Congress, delaying action on issues like immigration reform, among others.

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 runs the On Small Business blog.
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