Episode 47, What Leadership Changes Could Mean for Small Business
It’s now just a few days after the presidential election in the US as I’m recording this, and with it behind us I got to thinking about how a change of leadership and parties in Washington might affect small businesses in the U.S. Today, I want to talk about the possible impact that small businesses might have in the coming months and/or years. I’m ‘weary of political ads and speeches and having the news consumed with the election -- Paul Rosenblum.
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But before I talk about how businesses could be affected by the results of the election; I do have a comment on political polling. I know this isn’t related to the core of this podcast, but I’ll try and be short. And I really don’t want to make this political, so I’ll focus in on the economic part of what pollsters ask voters. Every election cycle, pollsters always ask a standard question – and that is – “Are you better off now than you were 4 years ago”, and that question is mostly interpreted by voters as ‘economically’ better than you were 4 years ago. Usually, it’s a straightforward question. However, this year, it was almost a ‘trick’ question. Let me explain.
4 years ago, in September and October of 2020, leading up to the election, many people were laid off from their jobs and collecting unemployment because of the pandemic. State unemployment expanded even to subcontractors (at least in my state of NY), and the federal government started a program for Covid-related federal unemployment benefits to all people who were laid off from their jobs.
The federal unemployment of $600 a week started in March of 2020 and lasted until the end of July 2020. This program was called the FPUC. (Federal Pandemic Unemployment Compensation). There was another program that was called the PUA (Pandemic Unemployment Assistance) that ran from March of 2020 for 39 weeks for self-employed workers, gig workers, independent contractors and others who wouldn’t ordinarily quality for unemployment benefits. As I said earlier, NY state, for one, extended these benefits through state unemployment for the first time ever.
Laid-off workers were getting $600 per week of federal money, and more from state unemployment, so they could have been receiving more than $3,000 a month, and because of the pandemic they were unable to go to bars, movie theaters, concerts, etc., since these were put on hold during the time where cities essentially closed down for business, unless you were an ‘essential worker’ like in bookkeeping and accounting and sanitation, as well as law enforcement.
Many people who received over $3,000 a month from federal and state unemployment were enjoying more money than they were making when they were working full time, of course, depending on what job that person had.
So, back to my original point: When a pollster asks, “Are you better off now than 4 years ago”, it was a trick question. The answer is, for many people -- NO. Why? Because they were making more money 4 years ago not working than they are now working 35 or 40 hours a week. Hence, the anger that a lot of people are feeling these days in general.
With all the talk about election interference, what makes a question like this ok to ask? It’s painting an inaccurate picture because of special circumstances. And it could have helped decide how people voted in this election cycle.
I mention this point, because every presidential election, people talk about how a change of power in Washington can change the economy for individuals and businesses, small and large.
When a new president from another party is elected, one of the things that is always talked about is the tax structure. Federal tax rates for individuals and for businesses can go up or down, depending on the controlling party – Democrats or Republicans. Donald Trump has proposed lowering the corporate tax rate from 21% to 15%. (Remember that 20% tax deduction for Pass through entities for tax returns from several years ago? That’s set to expire in 2025). This year, as in other presidential campaigns, a national sales tax has been mentioned, along with the idea of abolishing income tax, although there are no specific plans on the table for either of them. If there is ever a national sales tax of the (loosely proposed) 60%, then every retailer and website seller would have to adjust their prices to the consumer because of the additional 60% being added as a federal sales tax along with the already assessed state sales tax. A system would have to be designed on how the government would collect and enforce that sales tax. On state sales taxes, there are annual, quarterly and monthly payers depending on how much sales tax a business collects from the consumer. How would that be done nationally? No one knows. Even if it does happen one day, in my estimation, it’s years away, so it’s not worth losing sleep over that quite yet as an individual or business owner.
Some other things that might change with the new administration are regulations that apply to businesses. Regulation in consumer goods, for one. If the administration has stricter regulations, then they will probably cost companies more money, hence raising the price to the consumer. If the administration lowers regulation on some goods, then they might not be as safe, companies will make more profit, however, the retail prices of these goods would probably not go down.
There has been talk about tariffs on goods coming to the US from other countries. If the federal government charges taxes on imports for China, (it has been proposed that tariffs of goods from China could go up 60% - 100%) for an example, then the federal government makes more money to go into the pot to pay America’s bills (and how money is spent and budgeted is different with each party in power). However, if America charges higher import taxes, then the manufacturers overseas will raise their prices to American companies who buy their goods, and if that is done, then by the time the goods hit the stores, the prices will be inflated for the consumer. That could change the consumers’ buying habits and carry over to the buying habits of businesses as well. If these changes ignite a possible recession, keep in mind that some businesses do very well during recessions, and others don’t. (For example: comfort food companies, do very well, luxury items sometimes don’t).
If the retail stores and websites are selling less product because the price is higher, then they make less profit. Less profit can translate to laying off a part of the workforce or closing stores (even more so than they are closing now), and that affects the general economy for individuals and businesses alike by having the unemployment numbers go up.
Depending on what a new administration and congress does about minimum wage, this could hurt the economy of the nation as well. An increase of minimum wage would make payroll expenses higher for businesses, hence maybe a smaller workforce could be the norm for businesses in the US. Many companies would outsource to other countries, such as some of my clients already do with virtual assistants who get paid much less than American employees or subcontractors.
Already since the election, companies are stocking their warehouses with goods from countries overseas at the current prices to stay ahead of what could happen in the not-too-distant future. This changes how companies are spending now and could change how they spend in the future. It could lead to more US manufacturing of goods rather than importing from foreign countries and that could be a good thing, but of course, that could have political consequences down the line. But I won’t go there.
Many companies that have been thinking of expanding, are now cutting back on their plans or nixing their plans to do so altogether, having an uncertain economy with a new administration.
Changes to healthcare laws or the Affordable Health Care Act could affect consumer spending, business investments and the stock market including the value of 401K’s.
The good news is that things don’t happen overnight in national politics. A national sales tax could take years to implement. Abolishing income tax would take years as well. As we have seen, making major changes in immigration and enforcing those policies has and probably will continue to take a long time.
So, let’s not panic. Keep an eye on these issues but run your small business for the time being the same way you have always but make some minor changes like maybe not taking out a large loan to expand, maybe not hiring a whole lot of employees at one time until we see what the new administration has in mind in their policies that might affect us small businesses.
Depending on what the tax policies of the new administration will eventually be, we might all want to re-investigate if an LLC or a Corporation is the best option for us -- tax liability wise once the tax rates change, if, indeed they do.
Just some thoughts from a US citizen, a small business owner and a podcast creator for small businesses. Enjoy the rest of your day or week. Be podcasting to you soon with more traditional episodes.
I’m CEO, CFO, owner, chief bookkeeper, creator and “President” (get it?) of my company ---
Paul Rosenblum
