What the Midterm Elections Mean for Small Business

In the wake of the sweeping changes of the historic 2010 midterm elections, the new, Republican-controlled House of Representatives is likely to pursue sharply different policies than its predecessor.

The House is expected to attempt to roll back some of the Obama administration's efforts on health care reform and financial regulation, while pushing to make all the Bush-era tax cuts permanent and to halt any additional significant stimulus spending.

Many of these seismic shifts will impact small business. At least rhetorically, the GOP wants to make small business a center of its agenda. In his first remarks after learning that the Republicans had retaken the House, likely future Speaker John Boehner (R-Ohio) referred repeatedly to how the GOP would fight for small business. "I poured my heart and soul into a small business," an emotional Boehner said on election night, reflecting on his past before entering politics. The vote, he said, "means ending the uncertainty in our economy and helping small businesses get people back to work." In fact, many of the winning GOP candidates were small business people themselves, including Robert Dold of Illinois' 10th congressional district.

In what the GOP sees as no irony, a top priority for its small business advocates will be to alter, or totally gut, the Small Business Jobs Act. The legislation, passed into law in September, aims to expand Small Business Administration loan programs and increase the pool of capital for community banks to lend to entrepreneurs. Many GOP congresspeople argue that, even if the legislation produces some jobs and startups, its vast cost will outweigh those benefits.

New small business committee chairman

Missouri congressman Sam Graves, who won re-election easily and is now in line to replace Nydia Velazquez as chair of the House Small Business Committee, voted against that act, saying on the House floor, "Small business owners aren't looking for more government intervention and more wasteful spending...This is just another bailout bill." Graves is known as a staunch conservative whose priorities include reducing health care and tax burdens on small companies, as well as making government contracting more equitable. Still, after just a decade in Congress, he has relatively little experience running a committee, and it remains unclear how he will get along with the Democratic committee members.

Yet Graves has ammunition for change. A recent survey of small businesses by Sage, a business technology and management company, found only 16 percent of entrepreneurs believe they have received any benefit from the first round of government stimulus programs.

Meanwhile, the Democratic minority in the House, which also portrays itself as a champion of small business, is likely to strongly defend the small business jobs bill. Democratic analysts believe the bill, just signed into law in September, will be popular with the public as it takes effect. States have just begun receiving the federal funding that community banks can use to fund small business loans.

86ing the new 1099 regulations

Perhaps the most likely early legislative move in the House will be to introduce a bill exempting small companies from a new reporting requirement included in this year's health care legislation. The new IRS 1099 regulation forces businesses to report every new purchase worth over $600. "Congress must repeal the expanded 1099 mandate, or small business owners face a paperwork nightmare in 2012," says Karen Kerrigan, president of the Small Business and Entrepreneurship Council, a Virginia-based research and advocacy group.

The GOP realizes it cannot totally repeal the Obama administration's health reform efforts. Instead, Republicans will likely try to chip away at the health reform, according to several political strategists.

One of the party's priorities, enunciated in its pre-election "Pledge to America," will be to repeal the small business mandates in the health care law. Sen. Orrin Hatch (R-Utah) has already introduced legislation that would ensure employers no longer pay a penalty for not offering health insurance to their workers. The Republicans also may try to reduce funding for many of the provisions of the law, in an attempt to make the health care legislation meaningless.

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A new era for international trade?

Another area where the shift in control of the House will mean significant change is trade. The Obama administration has vowed to pass trade deals with South Korea, Panama, and Colombia, but the Democratic Congress did not support these deals. Now, with the generally more pro-trade GOP running the House, several of these agreements are expected to pass, including the deal with South Korea, which is a major emerging export market for American small companies. Rob Portman, the newly elected GOP senator from Ohio, served as U.S. Trade Representative in the George W. Bush administration, while Mark Kirk, the new Republican senator from Illinois, was known as a leading proponent of open trade during his tenure in the House.

Big changes won't be easy, of course. While the Republicans made major gains across the board, the reality is that they have a relatively slim House majority and the Democrats still -- barely -- control the Senate and the White House. Helping their cause will be support from more conservative Democrats, like Nebraska Senator Ben Nelson, who sympathize with many of the GOP's small business initiatives.

At the same time, however, the Republican wave swept out many of the more conservative Democrats known for their small business advocacy, like longtime South Carolina congressman John Spratt. The surviving Democrats actually tend to be a more liberal bunch, while the Republican side of things is decidedly more conservative than it was before these elections.

That strong partisan divide threatens to produce little more than gridlock. If so, voters could be even angrier by the time the 2012 elections roll around.

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