Headlines have dubbed it “unthinkable,” and businesses small and large have urged lawmakers for months to agree soon to ensure the country doesn’t default on its debt. But next week’s August 2 deadline to raise the federal debt ceiling looms, and a recent deal that could have resolved the issue fell through because some lawmakers couldn’t abide elimination of special tax breaks used mostly by the most affluent. It’s alarming that lawmakers have taken the debate so close to the wire, considering the havoc a default would wreak on small businesses and the economy as a whole.
With each passing day that politicians fail to make a deal, economic uncertainty grows, shaking the environment for small and large businesses alike. Unfortunately, the clock is still ticking and that last minute is fast approaching.
There are myriad reasons why we must not default on the debt: skyrocketing interest rates, an across-the-board credit freeze–essentially total financial collapse. While much of the debate has focused on big businesses and Wall Street in particular, which have plenty on the line, small businesses will suffer even more from a default. Small businesses don’t have the means to weather an economic crisis in which many big businesses can thrive, as the aftermath of the recession has made abundantly clear. Many small businesses that already are scraping by in our sluggish economy are financed with variable-interest-rate loans – unlike the largest businesses, which can sell their own fixed-rate long-term bonds in the market. If the nation defaults and interest rates spike, those small businesses will be the first in the line of fire.
While there were signs of progress last week talks fell through over the weekend. This is incredibly discouraging, considering lawmakers have a mere five days to reach agreement.
Some of the proposals reduce the deficit through significant cuts and revenue-raising measures. Now that there is more than raising the debt ceiling on the table, lawmakers must realize the long reach of their decisions as they negotiate a deal. The choices they make now may have a large impact on our fragile economy’s fledging recovery. Key decisions must be pragmatic and carefully considered. If a deal doesn’t spread the burden fairly and evenly, the consequences could be almost as bad as missing the deadline and defaulting on our debt.
Compromises that extend the debt limit for the long-term must be as balanced as possible. A final deal must include a mechanism that allows for revenue-raising measures to be included down the road. A plan offered by a bipartisan group of senators known as the “Gang of Six” provides a good framework to do this. They close inefficient corporate tax loopholes to raise revenue. That approach eases the burden on firms that now pay relatively more, especially small businesses. By doing this, business tax rates could be lowered to allow now-heavily taxed firms, including small businesses, to keep more of their profits in their pockets, helping them to expand, grow and thrive.
Other measures being considered, such as curbing waste, fraud and abuse in Medicare and reforming the physician payment system, known as the “doc fix,” will also help stabilize the deficit without harming small businesses or depressing consumer spending–a key concern for entrepreneurs. Small business revenues, especially, were greatly reduced during the recession and have barely recovered. It’s crucial that any budget cuts included in a final compromise not slow small businesses’ sales. Doing so would stifle job growth and halt our economic recovery.
Watching sound proposals fail because of today’s hyper-politicized environment in Washington is beyond frustrating. Some lawmakers are using small business as cover to protect tax breaks for the most affluent by claiming small business owners are included this group. In fact, the vast majority of entrepreneurs and even many highly taxed large businesses will not be affected if these breaks expire. Lawmakers are simply putting special interests above the success of our nation’s job creators. This situation must change. In the waning days before the August 2 deadline, lawmakers must put the nation’s economic solvency before partisan politics and remember the needs of the economy, dynamic businesses, and consumers as they negotiate. Many business owners simply won’t survive if they don’t.