Why Obama is Good for Small Businesses

One of the most important issues facing the next president of the United States is how to improve the economy, and one of the most important allies in that task will be the small business owners of America.

According to the US Department of Commerce, small businesses employ about half of all private sector employees in the United States, and are responsible for 60-80% of net new jobs annually in the last 10 years. Small businesses pay about 45% of US private payrolls, and create more than half of private, non-farm gross domestic product. They produce 13 times more patents per employee than large firms.

Helping small businesses is vital to the health of our economy, and Barack Obama plans to do just that.

Tax Relief for Small Businesses

Barack Obama's small business plan includes tax cuts and credits to small businesses.

His plan will eliminate all capital gains taxes on small and start-up businesses to encourage innovation and job creation. He also plans to offer relief to self-employed small business owners who pay taxes both on the employer and the employee side by offering a $500 "Making Work Pay" tax credit to almost every worker in America, and wants to make the R&D tax cut permanent in order to encourage innovation.

Why are tax cuts to individuals important for small businesses? Because individuals are the owners, employees, and customers of most small businesses. Simply put, cutting taxes to the middle and lower classes improves the economy because it puts more money into the hands of the people who are most likely to spend money on the products and services provided by many small businesses.

Barack Obama's tax plan will cut taxes to 95.5% of American families with children, and 81.3% of all households. Not only that, but it will cut taxes more than John McCain's tax plan for more than 60% of all taxpayers.

He would raise taxes on the two highest tax brackets (families making over about $250,000 per year, which includes 1.4% of small business owners, as well as some partnerships and Schedule C corporations) to 36% and 39.6% respectively, the same rate they were taxed during the Clinton years.

One of the major issues affecting small businesses is health-care reform. Many entrepreneurs lose their insurance coverage when they quit a previous job to start up a business of their own, and small business owners also complain that their employees are struggling to cover rising health care and insurance costs. This may not only lead to more out-of-pocket money for the business, but also to a weakened economy as customers are forced to devote more and more of their incomes to health care and insurance costs, rather than the products and services provided by small businesses.

Obama's health plan would set up a national public plan which would offer coverage similar to the Federal Employees Health Benefits Program and which would provide both individuals and small businesses with the opportunity to purchase low cost, high quality insurance plans.

His plan calls for a "pay-or-play" requirement for large companies, by which they would have to either offer coverage or pay a portion of premiums for their workers, or pay a percentage of payroll into the national public plan. Small businesses would be exempt from this requirement. However, small businesses that did offer insurance coverage for their employees could qualify for a refundable tax credit of up to 50% of premiums paid for employees. Obama's plan would also reimburse employer health plans for a portion of catastrophic costs paid by the employer, in order to reduce volatility and keep insurance costs lower.

Barack Obama plans to raise the minimum wage and index the rate to inflation. Although it has often been argued that raising the minimum wage hurts small businesses, there is strong evidence to suggest that in states with minimum wages higher than the federal level, job growth from small businesses actually increased more than it did in states who kept to the federal minimum wage, especially in the retail sector. The reason for this is probably higher productivity due to increased employee retention and savings on recruitment and training expenses. The number of small business start-ups also increased in states with higher minimum wages, at nearly double the rate of states who kept the federal minimum wage.

Raising the minimum wage also increases the amount of money in people's pockets, enabling them to buy more and improve the economy. The federal minimum wage increased in 2007, from $5.15 to $5.85, for the first time in over 10 years. The real value of the minimum wage, when adjusted for inflation, has been steadily declining since 1968, when it peaked at $8.97 in 2007 dollars.

Obama's other proposals include plans to create a network of small business "incubators" to help start-up, particularly in rural and disadvantaged areas, to decrease discrimination in lending practices to women and minority small business owners, to provide tax credits for venture capitalists investing in small businesses and start-ups in rural and disadvantaged areas or working in the alternative energy sector, to provide emergency relief to small businesses hit hard by the rise in energy prices or reduced access to credit in the current economic crisis, and more.

Finally, since Franklin Delano Roosevelt's third term, Democrats have simply been better for the overall economy, including small businesses and their owners, than Republicans.

Under Democratic presidents since FDR, GDP has grown an average of 4.4% annually, compared to 2.6% for Republican presidents. Employment under Democrats averages 3.0% growth per year, compared to 1.3% for Republicans, and unemployment rises under Republicans by 1 point, while falling under Democrats by 1.9. Although Republicans give greater returns on bonds, Democrats typically preside over greater stock returns. The S&P 500 averages in annual increase of 4.7% under Democratic presidents, compared to 2.9% under Republicans. Income inequality rises under Republican presidents, and lowers slightly under Democrats, though overall it has risen steadily under both parties since the 1960's.

In fact, the only major economic indicator on which Democrats fare worse than Republicans is inflation, but the record is far more mixed than on the other indicators. Eisenhower, Ford, and Bush, Sr. all presided over increases in inflation, while Truman and Kennedy's terms saw decreases.

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For these and the other reasons laid out in this hub, I, as an employee of a family-owned small business (owned by my brother-in-law), support Obama.