President Obama is set to send his 2016 budget proposal to the newly Republican-led Congress as early as Monday, and news of what's in it has already begun to emerge--namely, plans for spending increases.
While small businesses could expect a slight economic boost from more government spending, experts say, the budget debate is likely to be weighed down by intense partisan rancor that may offset any potential gain. Among other events, there's a threat of more skirmishes over the debt ceiling and another government shutdown.
"The harsh reminder of political dysfunction is about to begin again in earnest," says Jonathan Citrin, founder of investment advisory Citrin Group, whose clients include small-business owners. "The possibility of a government shutdown hurts consumer confidence and spending, which is more than just fodder for sound bites. Negative sentiment affects the income statements of small businesses around the country."
Among the most salient features in the president's budget is an end to the sequestration cuts that have been in effect since 2013 and which are slated to run until 2021. The cuts were expected to save the federal government about $133 billion a year. The president has proposed increasing spending by 7 percent over mandated levels, or by approximately $74 billion. That amount would be about evenly split between plans for $530 billion in discretionary nonmilitary spending, and $561 billion in defense spending, according to The Washington Post.
If these measures go into effect, the impact on the economy and small businesses would be modest, says Thomas Hungerford, senior economist and director of tax and budget policy at the Economic Policy Institute. The billions in extra spending would amount to about 0.05 percent of gross domestic product, he says.
Still, Hungerford says, "it is a little something. And the money would be spent in many cases within the next year, which would have a positive impact on the economy."
Most likely places where the money would be spent include upgrades on infrastructure, which President Obama, in his State of the Union address last week, mentioned as one of his top priorities in his remaining two years in office. Improved infrastructure would benefit business with better roads and ports and railway lines, and it would also put people to work, giving a boost to local contracting companies that would do the upgrades, Hungerford says.
The budget would also increase spending for the Department of Defense, which is also good news for companies that do business with the agency, and other government contract work. Redhorse Corporation, an Inc. 5000 company based in San Diego, which works with the DOD to provide services like program management and systems engineering, says the sequester has shaved revenue 5 to 10 percent since 2013.
"Some contracts have been delayed, and opportunities have been delayed, and some work has been consolidated or not [put out for bid] at all," says David Inmon, founder and chief executive of Redhorse, which has 125 employees.
Another negative effect of the sequester on Redhorse has been the mandate that the government put many of its procurements up for bid under a standard called lowest price technically acceptable (LPTA), which as its name suggests, basically means the lowest price possible. While that's fine for bids on things like office supplies or fuel, it's a different game for work that involves a lot of human input, such as systems engineering, Inmon says.
Pushback on the Hill.
In one sign of the likely Republican pushback against the president's budget proposal, Cory Fritz, a spokesman for Speaker of the House John Boehner (Republican, Ohio), had this to say in a blog post Thursday:
Republicans believe there are smarter ways to cut spending than the sequester and have passed legislation to replace it multiple times, only to see the president continue to demand tax hikes. Until he gets serious about solving our long-term spending problem it's hard to take him seriously.
Still, Inmon is hopeful that constructive dialogue between the two parties, and increases on spending limits, could happen.
"It would be very positive for us, and give us more opportunities to compete for work," Inmon says.