The State of Small Businesses in an Election Year

As the November election approaches, small-business people and entrepreneurs are going to be facing some tough questions about what issues matter the most to them. One person closely following these issues is Thomas Sullivan, the outgoing chief counsel for advocacy at the Small Business Administration. Sullivan has headed the Office of Advocacy, which is meant to act as a watchdog over the rest of the federal government on behalf of small businesses, since 2002 and is concluding his service on October 24. We talked to Sullivan about his perception of the major challenges for small businesses today.

During your tenure at the SBA, what changes have you seen in terms of the most important issues affecting small-business people?
The biggest issue stays the same. The one issue that I have consistently heard all over the country meeting with small businesses is healthcare. And not just access to healthcare but cost of healthcare. That's the key distinction that seems to be lost as we approach the November election. Almost everyone focuses on access to healthcare. But in some ways they are ignoring small businesses' main concern, which is the cost component. Small-business owners almost uniformly pay attention to cost. When they make an investment, they want to see the value of that investment. When it comes to healthcare, they want government to fix it so that cost is the primary concern. How do you keep costs down? It's a tough issue. There isn't a silver bullet.

Is the cost of healthcare such a major issue because it's becoming harder for small-business owners to provide healthcare to their employees?
It's more than that. It's the way small-business owners think. When small-business owners look at their bills at night, they think cost first. When you look at healthcare, it's actually been the top concern for about eight years. The top two concerns on many surveys are generally healthcare and taxes. I have never seen healthcare be at the top of the concern list for as long as it has been. If their premiums keep going up between 25 and 50 percent every year, then they no longer have access to healthcare.

People like John McCain are focusing on making healthcare more portable—less tied to jobs.
Again, folks unfortunately and naively are looking for some sort of a silver-bullet solution. Portability has to be part of the solution. But no, you can't just all of a sudden shift away from employer-provided care. The idea of shifting a little bit makes sense, but not in the way it's being debated right now. The way it makes sense is because of the inequities of the self-employed person, and that has not been covered at all in this campaign. You've got over 21 million small-business owners who file as individuals. That's an amazing number. The total small-business universe is only about 28 million. Here's the kicker: Right now, they do not get pretax healthcare deductibility. They're paying over 15 percent more on taxes for the healthcare premium than someone who has healthcare in an employer-sponsored plan. Should an individual be able to take responsibility for his or her plan? The answer is yes. But, in my view, it's completely distorted. I wish folks would recognize the small businesses that are at complete disadvantage in getting coverage. There have always been a series of bills introduced by Congress that seek to allow self-employed to have pretax deductibility, just like corporate filers do. It has not gotten anywhere. I think it is completely unfair that the fabric of entrepreneurship in this country is at disadvantage to get healthcare.

Have any other issues gained as much importance as healthcare?
More recently, about three issues have eclipsed that. First is energy security and cost of fuel. The cost of fuel will only heighten as we get toward Christmas. Research from my office shows that 53 percent of small businesses are home-based. So when you talk about the concern of heating your home, you can't separate small businesses from that. Second, it's the economy. Small firms have been tightening their belts for over a year. There is a very large contingent of small-business owners who are a little peeved right now that 12 to 14 months after they knew they had to cut their expenses and stop hiring, the rest of the world woke up to this financial crisis. I'm not saying that offers any solution, but it is an acknowledgement that as small business goes, so does the economy.

You mentioned home-based businesses. How is the nature of small business changing?
We've really studied the phenomenon of self-employment. Depending on which glasses you're wearing, it's either a good thing or a bad thing. Self-employment has risen at a tremendous rate in this country over the last five years. In my view, that is outstanding. More people have the ability to be Bill Gates. Other folks look at the phenomenon and say, "Well, that's just because companies are laying people off."