Business Groups Splinter on Fiscal Issues

Politicians need to understand that all businesses don't march in lock step when it comes to solving the country's budget crisis.

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David Brodwin is a cofounder and board member of American Sustainable Business Council. Follow him on Twitter at @davidbrodwin.

As negotiations over debt and taxes continue in Washington, business groups have broken ranks. They now show an unusually wide range of positions on this crucial issue. This week, 15 owners and founders of small businesses were invited to meet with the president to discuss taxes and debt reduction. The diverse group included owners of a footwear company, an independent music retailer, a mushroom farmer, and an online gift shop. These entrepreneurs challenged the conventional thinking usually put forth by the trade associations that lobby on tax issues.

Breaking with the U.S. Chamber of Commerce and its allies, many small business owners now call for ending tax cuts for the top-tier payers, restoring these rates to where they were under Clinton. In addition, they want to preserve the prepaid benefit programs of Medicare and Social Security to the greatest extent possible. These business owners have joined in a new generation of associations such as American Sustainable Business Council, Business for Shared Prosperity, and Main Street Alliance.

[See a collection of political cartoons on the budget and deficit.]

Why would a small business owner call for protecting Social Security and Medicare?

Small business owners argue persuasively that these programs help the U.S. economy as a whole and benefit their own businesses in particular. Their concern reflects public interest as well as private self interest. If Social Security and Medicare are undermined, they say, consumers will become far more anxious about their own financial well being. This will lead them to suppress their spending and increase their saving. The retrenchment in spending won't be limited to those already retired: We'll see reduced spending among those who support aging parents, and those who must save more for their own retirement. The net result will be a prolonged slump in demand affecting nearly all businesses and consumers in the United States. The slump in consumer spending will reduce business profits and delay hiring.  

Why would a business owner call for raising taxes?

Simply put, raising taxes at the top is the only way the United States can begin to pay down the debt without impairing programs we need. Many other ideas have been circulated for raising tax revenues without raising tax rates—such as closing the home ownership deduction. But these proposals have two problems: They don't raise enough money, and because they fall disproportionately on the middle class, the further stifle consumer confidence and spending.

[See a collection of political cartoons on the economy.]

Moreover, raising tax rates at the top has virtually no impact on most small business owners. The increases only affect those with incomes above $250,000—and then, due to the progressive nature of tax brackets, the average rise in taxes would be much smaller than the change in marginal tax rates.  

Business Groups stake out conflicting positions on taxes and spending

While many small businesses now challenge further shrinkage of key government programs, a split has developed in other parts of the business world. The U.S. Chamber of Commerce strongly opposes any increases in tax rates, as it has in the past, regardless of the cutbacks or deficits that result. The National Federation of Independent Business, which claims to represent small business but relies heavily on donations from political, nonbusiness sources, takes a similar position. However a prominent group "Fix the Debt" has heavy business support but it has broken from the extreme antitax position. It proposes a solution that combines program cuts and tax increases. While their solution involves much more program cuts than tax revenue increases, it does represent a significant break from business as usual.

[Read the U.S. News Debate: Is Grover Norquist's Tax Pledge Losing Its Effectiveness?]

It's time that Americans—including our political leaders—stop seeing all businesses as marching in lock-step. Our national challenges are not simple, and what's good for the largest corporations and America's wealthiest investors is not necessarily good for Main Street, nor for the economy as a whole. Our politicians must understand the difference.

  • Read Chad Stone: Unemployment Insurance Must Be Included in Fiscal Cliff Deal
  • Read Andrew Samwick: Stimulus Better Spent on Infrastructure, Not Tax Cuts
  • Check out U.S. News Weekly: An insider's guide to politics and policy.