Will Small and Mid-Market Firms Take on Washington?

Overreach by regulators under the Obama administration also has rocked small companies that don’t have legions of lobbyists to protect them. Tax policy and debate continues to skew toward the interests of C corporations instead of S corporations, even though the latter designation covers about three-quarters of small companies. And state-level economic-development efforts tend to focus on landing bigfish manufacturing prizes while ignoring the needs of small businesses that have been providing jobs all along.

Sector by sector, the system also skews against SMBs. Take manufacturing, for example. The Export-Import Bank, championed by some as an export enabler for small American factories, was mourned mainly by large companies when Congress put it out of commission for a while last year. What’s more, Obama administration’s war on the coal industry, while certainly targeting multi-billion-dollar coal producers and electrical utilities, is also ravaging the ranks of hundreds of suppliers that are the very definition of small and mid-market business.

Examples of Inequities
The beer business is an example of how government policy can affect a growing SMB sector. Craft brewers, who have been taking market share from the traditional big breweries, believe they’re getting short shrift from a Washington establishment that continues to protect the big guys on two issues.

First, the merger of Anheuser-Busch InBev and SABMiller would give one company too much control over the U.S. distributor network, disadvantaging craft brewers. Second, excise taxes on the industry are particularly punishing to small companies, so they want Congress to overhaul them. “Small brewers are the economic engine in this industry, and recalibrating excise taxes will give small brewers additional capital to grow and hire more workers,” explains Sam Calagione, CEO and founder of Dogfish Head Craft Brewery in Milton, Delaware.

Brick-and-mortar retailers are another example. Betsy Burton, co-owner of the King’s English Bookstore in Salt Lake City, is leading the charge on leveling sales taxes on Internet transactions, one of the most onerous issues these retailers face. Already struggling from the big-box-store phenomenon that has transformed their industry over the last quarter-century, they have been fighting big business and government discrimination over e-commerce sales tax.

“Initially, the politicians wanted to give e-commerce a break,” says Burton, who testified in Washington on the issue. “But this allows big companies like Amazon to get bigger, which also has all kinds of antitrust implications in addition to putting an extra sales-tax burden of about 5%, depending on the state, on brick-and-mortar companies and those that don’t have huge online sales.”

The nature of SMB advocacy contributes to the imbalance and to its persistence. “High costs put effective lobbying of federal and state legislatures out of range” for these businesses, says Handwerk, the family-business consultant, “while large corporations can readily afford it.”

Advocating for Change
There are a number of highly active groups lobbying on behalf of small businesses, including the National Federation of Independent Businesses, which counts 325,000 small-business members. But mid-market companies especially can lack clout “because they tend to be simpler businesses that may not have complex issues with government and may not feel it’s particularly worth their while to invest in a large lobbying effort,” says Thomas Stewart, executive director of the National Center for the Middle Market. “Maybe they just delegate that to trade associations.”

However, there are some encouraging signs for SMB owners and CEOs who would finally like to overturn the imbalance in treatment. In Washington, for instance, Stewart’s outfit along with the Association for Corporate Growth formed a Congressional Caucus for Middle Market Growth two years ago. It’s up to 17 members and expanding.

In Florida, meanwhile, small-business interests, along with the Americans for Prosperity advocacy group, defeated an effort by Governor Rick Scott to use $250 million in state funds for a new pot to lure out-of-state companies to the state or to convince in-state companies to expand, a clear corporate-welfare gambit, according to foes.

And in this election season, SMB advocates have noted that more presidential candidates have focused on cutting taxes for S Corporations as well as corporate taxes when they talk about tax
reform. Maybe small and midsized companies can be more than props in this campaign.

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