How a Big Federal Budget Helps Small Businesses
In the wake of the Iowa caucuses, only one character is likely to be less popular than President Obama: Big Government itself. Big Government, the Republican presidential candidates claim, wastes taxpayer dollars, thwarts innovation, and over-regulates small businesses. Just one more reason that we need to make dramatic cuts in government spending.
But for small businesses, big government isn’t just a big pain. It’s a big client, too.
The Small Business Administration’s Office of Advocacy estimates that in 2010, government agencies awarded contracts worth a total of $97.95 billion to small businesses. (For reference, the entire budget of Iraq is about $100 billion.)
That $97.95 billion only includes prime contracts – those in which a small business works directly for a government agency. Small businesses acted as a subcontractor on an additional $153 billion of government contracts in 2010.
The first line of attack for budget-cutters is almost always non-defense, discretionary spending, which excludes interest on the debt and hot-button entitlement programs such as Social Security, Medicare, and Medicaid. In 2010, such spending totaled $537 billion, according to the Congressional Budget Office. Capping that spending at 2008 levels would bring it to about $434 billion. (Here, the math gets complicated, as some people refer to “non-security” as opposed to “non-defense” spending, and others include money from the stimulus package). But roughly, we’re talking about a $100 billion dollar cut, and on average, small businesses would be expected to get about 22.6% of that, according to the Small Business Adminstration’s Office of Advocacy. That works out to about $23 billion less in federal contracts – not including a potentially greater amount of subcontracting work that will be lost.
The impact of shutting down entire government agencies, as Ron Paul and Rick Perry have both suggested, is easier to calculate. Rick Perry would like to get rid of the Departments of Commerce, Education and Energy, which together spent about $3.668 billion with small companies in 2010. (Again, that doesn’t include subcontracts).
Ron Paul would be more aggressive, and suggests immediately shuttering five government agencies: the Departments of Energy, Housing and Urban Development, Commerce, Interior, and Education. Not counting subcontracts, that’s a total of $6.333 billion lost to small businesses in just one year.
It’s impossible to tell how more general proposals, such as capping the federal budget at 18 percent or 20 percent of the gross domestic product, would affect small businesses. Certainly there would be contracts lost, as well as weakened consumer spending if any administration really put a dent in entitlement programs.
That doesn’t mean that government can’t operate more efficiently, as pretty much everyone agrees it should. And reasonable people can differ on the proper role of federal government, and the size it needs to be. But it’s important to remember that cutting government spending won’t automatically be an unmitigated boon to small companies. When a big client cuts back, the businesses that serve them get hurt, too.