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What Does a Democratic Takeover of Congress Mean for Your Company?

Leading small-business experts say the shift in power could result in more scrutiny for the SBA and federal contracts, but also higher taxes and a minimum-wage increase.
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With a Democratic takeover of the House of Representatives and the Senate, entrepreneurs and advocacy groups are largely mixed on the general outlook for the small-business economy in the years ahead.

What's certain is that small-business owners were keeping a very close eye on the election.

Nearly three-quarters of business owners said they believed the outcome would have a direct impact on the economic climate for small businesses nationwide, according to a pre-election survey by Wells Fargo and Gallup. More than 90 percent of those who owned their businesses for more than five years said they planned to vote.

At the top of their lists were issues such as health care, tax relief, and rising energy costs, according to a pre-election survey by American Express of more than 600 businesses nationwide that employed fewer than 100 workers.

Rep. Don Manzullo (R-Ill.), the now-outgoing chairman of the House Small Business Committee, charged that a Democrat-controlled Congress would roll back small-business tax cuts, SBA reform, affordable health-care options, and other recent Republican-led initiatives, replacing them with higher taxes and more regulations. "Our small employers -- the job creators of our economy -- would suffer mightily," Manzullo said in a statement ahead of Tuesday's vote.

As such, national small-business groups, including the National Federation of Independent Business, the U.S. Chamber of Commerce, and the National Small Business Association, had consistently ranked Republicans on the House Small Business Committee ahead of Democrats, Manzullo said.

Still, the NFIB, the nation's largest small-business lobby, with more than 600,000 members, said on Wednesday that most issues left the table that concern small businesses don't have a partisan label.

"While the composition of the Congress has changed, the obstacles that threaten small-business owners, employees, and their families have not," Todd Stottlemeyer, the CEO of the NFIB, said in a statement Wednesday. Stottlemeyer said the group supported "pro-small-business candidates in both parties, and small-business owners will now look to the Congress to get the job done."

In Tuesday's elections, Democrats gained 29 seats overall in the House, giving them 229 seats, compared to the Republicans' 196. Ten seats remain undecided.

In the Senate, Democrats picked up six seats overall, including the narrow victory of Democratic challenger Jim Webb over Virginia Sen. George Allen, who conceded on Thursday. The new Senate lineup now stands at 49 Democrats, 49 Republicans, and two independents, who plan to vote with the Democrats.

Democrats already seem poised to change course on small-business issues. For her part, Rep. Nydia Velazquez  (D-N.Y.), the top Democrat on the soon-to-be Democrat-led Small Business Committee, has long slammed the Republican's record on small business, citing lackluster job growth and a soaring federal deficit, among other issues. She claims few small-business owners qualify for the top-level tax cuts Republicans often touted on the campaign trail. 

Velazquez has also been a vocal critic of the Bush administration's record on awarding small-business contracts, which she claims are routinely miscoded and awarded to inappropriately large firms.

"Rising health-care and energy costs coupled with a decline in access to affordable capital has hampered the ability of entrepreneurs across the country to establish and expand successful enterprises," Velazquez said in a statement on Friday.   

So was Tuesday's outcome good or bad news for the nation's estimated 25 million small businesses? We asked leading small-business advocates and entrepreneurs how they see the next few years shaping up.

From a small business perspective, what were the big wins and big losses in Tuesday election?

Karen Kerrigan, president of the Small Business and Entrepreneurship Council, a Washington-based advocacy group: In looking at some of the Democrats who are now new members of Congress, you have a good handful from business backgrounds and even small-business owners, and that's good news. One seat that was lost was Sue Kelly's (R-N.Y.). She was very much a pro-small-business member who was slated for the small-business committee, a former small-business owner who was knocked down.

Andrew Sherman, partner at Dickstein Shapiro, a Washington-based law firm focused on small-business issues: In general, I was disappointed in the under-emphasis on domestic issues and particularly those affecting small business. I wish someone would have talked about something other than Bush-bashing. Speaking from a small- and minority-owned business perspective, having the first woman speaker of the House is a big win.

Adam Lowry, co-founder of Method Products, a San Fancisco-based biodegradable cleaning products firm that ranked No. 7 on the 2006 Inc. 500 list: On the nation level, there were no real surprises. Voters are still voting on short-term issues instead of long-term issues. Here in California, there were many statewide bond issues, like a production tax on oil companies that would go towards funding alternative fuel sources. It doesn't look like that's going to happen now. At the same time, an income tax increase on corporations and small business owners did pass.

Lloyd Chapman, founder of the American Small Business League, a Petaluma, Calif-based small-business advocacy group: It turned out exactly like I thought it would. The big win is that pro-small business people are now in control of the House Small Business Committee and the Government Reform Committee. I suspect Nydia Velazquez is going to hold some real hearings on small-business issues, not the pep rallies Don Manzullo used to hold.

What are the issues affecting small businesses that are more likely to move ahead in the new Congress?

Kerrigan: A minimum-wage hike now seems like a foregone conclusion.

Sherman: There are a lot of cliffhangers still out there.

Lowry: I suspect global-warming issues are now going to be making their way into Congress like never before. Nothing is likely to get passed, but at the very least they will start to engage in a real discussion about the issue.

Chapman: I think for the first time in six years we're going start seeing members of the Bush administration forced to answer why so many large corporations, like Northrop Grumman and others, are being awarded small-business contracts. There are currently 13 federal investigations looking into the more than $50 billion a year in miscoded federal contracts. There's going to be a lot more oversight of the Small Business Administration and [SBA administrator] Steven Preston is going to be on the hot seat.

What issues are now dead in the water?

Kerrigan: The death-tax repeal is out, for the short term, anyway. Perhaps there will be a bipartisan approach, but it doesn’t seem to be a priority.

Sherman: That fact that we may very well have deadlock between the House and Senate is a good-news, bad-news situation. It means a lot of bad legislation won't go ahead, but also that a lot of good legislation won't pass, either.

Lowry: The estate-tax repeal is going to fall flat. On health care, I'm pretty fearful that it's going to veer in a taxation issue.

Chapman: As far as I'm concerned, there were no real pro-small-business initiatives being advanced by Congress.

What's your general outlook for the small-business economy in the months ahead?

Kerrigan: It will be a challenging political environment, but that said, small-business owners have a strong track record on dealing with a bipartisan Congress.

Sherman: Overall, if I were a small-business owner, I'd want to wait and see how the dust settles.

Lowry: I'm pretty neutral about how it will affect the long-term growth of our company.

Chapman: The outlook for small business is going to be dramatically brighter.




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