Super committee cuts small business
The super committee was established to recommend solutions to the federal budget deficit. It’s due to report recommendations by November 22nd. Will it’s recommendations affect small businesses?
The answer is most certainly yes. Indications are it appears the expected decision by the super committee will affect businesses in a negative way in the short and medium term.
The super committee has to decide whether to recommend only spending cuts, or a combination of spending cuts and higher revenues. Increased revenues is considered code for higher taxes. If the super committee provides recommendations that are heavy or solely cuts, expect steep cuts to major government programs in the next few years. This will have to include cuts to major programs such as Social Security, Medicare, Medicaid, NASA, and defense. That will be true if the reason for the existence of the super committee and it’s goals are to be met. It will have to include cuts to many smaller programs such as farm programs, the small business administration, the department of Transportation, and others. This will affect small businesses in many ways.
Medicare / Medicaid – Many physicians accept Medicare and Medicaid patients. When Medicare and Medicaid are cut, both programs will likely be forced to lower the reimbursement rate to doctors. This will further cut into the profits of medical practices, lowering their gross receipts and profit margins. Many physicians already may feel that they cannot run a profitable enough business. This will result in many physicians and medical practices discontinuing to accept Medicare and Medicaid patients. Some may totally discontinue accepting new Medicare and Medicaid patients.
Defense and NASA – Major cuts to the defense department may occur. if so, it will have a major affect on many businesses across the country. In addition to the large defense contractors, there are thousands of smaller contractors that work with the larger contractors. There are even smaller companies that contract with these smaller contractors. Many more businesses derive their revenue simply by being located in the area of the largest contractors. Businesses such as restaurants, gas stations and retail shops will all take a hit. The defense department is at the top of the food chain and any changes have long tailed effects. With a budget in the $700 billion range, a $100 billion or $200 billion dollar cut can have a major affect on the economy.
Other programs – Other cuts by the super committee may affect the Small Business Administration, farm programs, the department of transportation, the department of education, and a long list of programs.
There is major pressure on the super committee to cut spending, and that doing so is a good thing. There has been very little discussion of how it will affect the economy. Long term effects of a lower budget deficit will be positive 5 to 10 years out. However, cutting spending in the short and medium term, as outlined above, will negatively affect many businesses. Revenues will be lower, contracts will be cut, businesses that are indirect recipients of the government programs will see lower sales as the businesses they feed off of have lower revenues.
In short, spending cuts by the super committee means less money to businesses, regardless of the issue whether the government has been overspending or not.
A – The SBA (small business administration) may get hit with cuts along with the many other non defense programs. Small businesses are having a very difficult time now getting loans from banks. If the SBA loan programs are cut back in funding, businesses will have even fewer options than they had before.
B – Farm Programs – Currently, farmers and businesses related to farming sometimes need government programs to assist them during times of droughts, early frosts and other times of crop destruction. Reductions in these programs will put farmers and related industries under greater pressure and more farmers may be forced out of business.
C – The department of Transportation – New highway construction programs, highway repair, rail programs such as Amtrack, funds for building and updating shipping ports will all take a hit if the department of transportation is cut.
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