Amazon and Apple may garner the headlines, but small business is still the backbone of the U.S. economy.
America is home to more than 30 million small businesses, which employ almost 60 million workers—half of the U.S. workforce. In fact, small businesses account for 99.9 percent of all U.S. businesses. Many are exporters, competing in the global marketplace and connecting our economy to the rest of the world.
Millennials are getting in on the act too. Nearly 20 percent of all small business owners are 35 or younger, turning their entrepreneurial ideas into real-world economic impact.
The state of the small business community, therefore, is perhaps the most important indicator of our country’s economic health. When small business owners have the resources to create jobs and expand operations, the ripple effects are felt throughout the U.S. economy—affecting Fortune 500 CEOs and hourly employees alike.
So what is the state of small business in 2019? How are small business owners feeling about the future?
The top-line figures paint a promising picture. According to the MetLife and U.S. Chamber of Commerce Small Business Index, roughly two-thirds of small business owners “have a positive outlook on their companies and the economic environment.” Over a quarter of small business owners plan to increase investment in the next year, while 29 percent hope to hire more workers. This bodes well for millions of employees and job-seekers, who depend on small businesses for financial stability.
But those figures have slipped since 2018. The Small Business Index’s overall score fell from 69.3 in the fourth quarter of 2018 to 65.6 in the first quarter of 2019, with plans to invest and hire also dropping off.
One explanation is the rocky political landscape in Washington, D.C. As Paige Arnof-Fenn, founder and CEO of Mavens and Moguls, put it: “The uncertainty over the recent government shutdown had ripple effects throughout the economy that impacted the start of the new year and hurt the stock market, which has caused businesses to give pause.”
On the bright side, the labor market remains robust. Based on the National Federation of Independent Business’ (NFIB) most recent Jobs Report, small business job creation broke the 45-year record in February, with a net addition of 0.52 workers per firm. In the words of NFIB President and CEO Juanita Duggan: “Small business owners are thankful to have the government shutdown in the rearview mirror but need more certainty about the future.”
Free-market policies can provide a dose of said certainty. It’s no coincidence that small business optimism has slipped since 2018, in the immediate aftermath of the Tax Cuts and Jobs Act’s (TCJA) passage. Last July, nearly half of the small business community reported plans of investment or expansion.
Investment and expansion become more likely when small business owners send less of their hard-earned money to Washington, D.C., and keep more in the form of investable capital. When more resources are used to pay taxes and cut through red tape, fewer resources are left over for small business employees—and those who depend on them.
Duggan put it this way: “The best thing Washington can do for the small business half of the economy is to continue the policies—tax cuts and deregulation—that leave them with more resources to invest and find qualified workers.”
Because of the TCJA’s reduced rates and increased deductions, for example, more than 800 U.S. employers—many of them small businesses—put their tax savings back into the economy. This ranged from new hires and facility expansions to wage increases and bonus payments.
The same logic applies to deregulation. According to a recent National Small Business Association survey, your typical small business owner spends at least $12,000 per year dealing with federal, state, and local regulations. In its first year alone, a start-up spends an average of $83,000 on regulatory compliance.
Alleviate that burden, and small business owners feel more optimistic about their finances. That newfound optimism leads to real-world benefits affecting millions of hard-working Americans—and boosting the U.S. economy.
So where do we stand? Small business is important, and small business needs another shot in the arm.
Catalyst articles by Luka Ladan