The primary concern for small business owners this time of year seems to be the same one dictating the conversation right now in Washington — taxes.
Congressional leaders from both parties last week released competing budget plans, reaffirming their starkly different views on trimming the federal deficit, particularly when it comes to tax policy.
Outlined in a plan released by Senate Budget Chairwoman Patty Murray (D-Wash.), Democrats have proposed raising $975 billion in new tax revenue while cutting the same amount in federal spending, and they want to pour $100 billion into an economic stimulus package.
The Republican plan, released days earlier by House Budget Chairman Paul Ryan (R.-Wis), takes a far simpler approach to balancing the budget: no new tax revenue, no new stimulus, and about $4.6 trillion in cuts.
However, those spending and tax variations are hardly the only the discrepancies between the two plans, which are laden with specific proposals that could directly affect entrepreneurs and small businesses across the country. Here’s a look at how the two plans stack up on the issues that matter on Main Street.
House Republicans’ budget plan
On Spending: Ryan’s plan takes a monster bite out of government spending, nearly five times the size of the cuts proposed by his opponents in the Senate, which could bring new worry to small and large government contractors already reeling from the impact of sequestration. Meanwhile, his plan would leave the recent automatic cuts in place but shift them away from defense spending toward discretionary programs.
Consequently, the plan would increase defense spending by about $550 billion, which would likely help contractors who work with the Department of Defense; however, the plan would trim an additional $250 billion in spending for domestic agencies.
The one other project worth noting in the Ryan plan is the Keystone XL pipeline project, which he has long supported and would likely create new business for scores of small firms, especially in the Midwest.
On taxes: There are a few similarities between the plans, including the elimination of tax breaks and loopholes. The House proposal would use the resulting tax revenue from closing loopholes to offset the cost of dropping both the top individual tax rate and the corporate rate to 25 percent, keeping the proposal revenue neutral.
The Republican plan would thus trim the tax burden for small corporations as well as small employers who pay “pass-through” income taxes on their business profits.
This continues the party’s economic argument that lowering the top rates would free up more capital for employers and investors to pour back into the private sector, which fosters job creation. However, Ryan does not specify which deductions and loopholes he would close, leaving that task to the House Ways and Means Committee.
On health care: Rehashing one the major campaign battles, Ryan has again called for the repeal of the health care law in his new budget. In fact, nearly half of his proposed $4.6 trillion in cuts rely on throwing out key provisions of Obamacare.
Small business owners and advocates have come down on both sides of the health-care reform debate, with some applauding the law and its tax breaks for small employers. Many others have denounced provisions that will soon require business owners to provide health coverage for their employees that meets government affordability and value standards.
On entitlements: The Ryan budget would cut $205 billion in Medicare funding compared to Obama’s budget and calls for $770 billion in cuts to Medicaid. His plan would also convert Medicaid into a state-run grant program and allow individuals to choose between traditional Medicare benefits or a federal subsidy to help them purchase private health insurance — the latter of which, he argues, will offer more flexibility to seniors, who make up an increasingly large portion of business owners.
Senate Democrats’ budget plan
On spending: Murray’s plan takes a far smaller chunk out of the federal budget, trimming spending by about $975 billion over the next decade. Her proposal would replace the sequester’s $1.2 trillion of automatic spending cuts with a blend of tax increases and smaller cuts, including $240 billion in savings from the conclusion of the war in Afghanistan, which Republicans have argued shouldn’t be considered “cuts.”
The Senate plan also includes a $100 billion stimulus package, which would finance transportation projects, school construction and job-training programs — a potential boon for small firms in search of work opportunities and future job candidates.
On taxes: Democrats want to close various tax loopholes, particularly those exploited by oil, gas and coal companies. But unlike their political rivals, they want the additional tax revenue to feed into the federal budget rather than cancel out lower rates for high-income earners and corporations.
Democrats also contend that the Republican plan won’t work as advertised, arguing that there aren’t enough breaks for the wealthy to close to offset lower tax rates. Many warn that Republicans will likely take aim at some of the breaks utilized by middle-class taxpayers, which could threaten already weak consumer spending.
On health care: The Murray plan leaves Obamacare untouched and proposes only a modest $275 billion in health-care cuts over the next decade. The savings would come from changes to the way health care providers are reimbursed for care and provisions to cut waste and fraud in the system.
Moreover, in response to Ryan calling for the repeal of Obamacare, Democrats on the Hill have argued that the law was cemented by the president’s reelection in November.
On entitlements: President Obama may have warmed to proposals to amend Medicare and Medicaid, but Murray’s budget proposal shows Senate Democrats are still not willing to make drastic changes to promised benefits.
Their proposal included a modest $275 billion in cuts to Medicare and Medicaid, drawing the line even further away than the president, who offered to cut $400 billion from Medicare alone in his end-of-year bargain with House Speaker John Boehner (R-Ohio).
During the recent fiscal cliff and sequestration feuds, many business owners opposed proposals to sacrifice entitlement benefits in order to close the federal deficit. Radical changes to Medicare, Medicaid and Social Security, they said, would directly threaten the livelihood of some older business owners, but more importantly, they feared such changes would rattle consumer confidence and drive down sales.
Which plan do you think would better support small businesses?