UPDATE -- 11/8/2018 (9:04 am): Unofficial election results show that the Democratic Party retook the House, while the Republican Party defended control of the Senate, according to the Associated Press. As of this update, Republicans held 51 seats in the Senate, the Democrats held 44, 2 seats were held by other parties and 3 seats remained too close to call. In the House, Democrats held 223 seats, the Republicans held 197 and 15 seats remained too close to call.
What policy focus will Congress take?
The results of the midterm elections brought the Democrats to power in the House, ending the unified Republican government in Washington D.C. What this means exactly for policy direction remains to be seen, but it does give small businesses an indication of what they could expect moving forward.
"While there will likely be plenty of gridlock, there are several areas where the Trump Administration and Congress might be able to find common ground and get substantive legislation passed in 2019," said Thad Inge, government relations manager at Paychex.
According to Inge, Congress could potentially tackle a bipartisan retirement package that makes it easier for small business owners to offer retirement plans to employees, as well as an infrastructure bill if both parties could find common ground in regards to funding it. Other hot button issues, Inge said, might have to wait.
"I am skeptical that a comprehensive healthcare bill will gain enough traction," he said. "While Majority Leader McConnell said today that he would like to pursue a bipartisan bill to improve the Affordable Care Act, it is hard to see that coming together after the divisiveness of last year’s repeal efforts. A bipartisan effort to lower prescription drug prices would probably be the exception."
The significance of midterm elections
Midterm elections might not have the pomp and circumstance of presidential elections, but with roughly one-third of Congress up for election, they still have significant ramifications for federal policy. Further, there are local, county and state legislators on the ballot as well.
For small business owners, few issues matter more than the economy and regulations. While people vote for many reasons, small business owners reliably keep an eye on some major recurring issues.
"I believe small business owners are always optimistic. It's a challenging political time, but entrepreneurs are focused on generating revenue, being profitable, finding new customers and finding new markets," said Lyneir Richardson, executive director of Rutgers Business School's Center for Urban Entrepreneurship and Economic Development.
Here's a look at the issues important to entrepreneurs this election season.
1. Economic growth
For small business owners, economic growth is the most important issue this election season. According to a Paychex survey of randomly selected entrepreneurs, 63 percent of respondents named economic growth as their No. 1 most salient issue.
"Small business owners are feeling good, but they want it to continue," Inge said. "They certainly don't want to see a bunch of new burdens and uncertainty put on them."
However, Inge cautioned, satisfaction with the current economic landscape is not a blank check for incumbents. The true bellwether for winning over small business owners' support is whether a candidate provides a clear roadmap that offers both certainty and an expectation of continued economic stability.
2. Tax policy
Naturally, taxation is often central to a small business owner's financial planning. It is a close second to economic growth in Paychex's survey of small business priorities, with 62 percent of respondents stating it is a major focus for them at the ballot box. Driving this issue are unresolved questions and concerns surrounding the Trump administration's recent tax reform package.
"With the tax reform bill, many businesses got a tax cut … but a lot is up in the air, and some businesses aren't seeing that yet," Inge said. "The IRS recently put out the rules for who qualifies, and it's not everyone. The individual cuts also aren't permanent, so these background reasons are why tax policy is still a top priority." [Read related article: Small Business Taxes: What to Expect in 2018]
3. Healthcare policy
Debate on healthcare reform seems to be the topic that never goes out of fashion in Washington, D.C. Small business owners, many of whom currently must provide health benefits to their employees, are highly invested in the direction of this discussion on Capitol Hill. According to Paychex's survey, 48 percent of respondents listed healthcare policy as a critical issue as they prepared to vote. That aligns with the general population, which is also highly attuned to any discussion surrounding the American healthcare system.
"Some things we're hearing a lot about are pre-existing conditions and whether they'll be included in the future, the cost of healthcare, and uncertainty around what direction policy will go in over the next couple years," Inge said. "The administration is doing a lot on association health plans and health reimbursement arrangements; there's still a lot going on in the healthcare space even though Congress hasn't been as active."
What does the debate look like in Congress? Generally, progressive officials continue to tout a Medicare-for-all, single-payer program, while more conservative representatives want to shift away from the Affordable Care Act model. Of course, as it is with all issues, there are variations of these ideas across the political spectrum. Regardless of who's raising healthcare reform as an intended policy, though, entrepreneurs are listening intently.
4. Trade policy and tariffs
Trade policy and the new spate of tariffs announced by Washington, D.C., have small business owners wary of rising costs because of price hikes throughout the economy. According to Richardson, gradual price increases due to tariffs could ultimately become a significant obstacle for small businesses.
"Small businesses always focus on new customers; gaining access to new contract opportunities; access to capital to fuel growth, new markets, employees; and the cost of materials and supplies," Richardson said. "All that is wound up in 'Can I operate profitably?' Entrepreneurs look to government to not be an impediment and, instead, be a champion for recognizing the power and need for small businesses.
"People are still worried about tariffs, international trade relations and foreign relationships," he added. "Small business owners are hypersensitive to changes in the pricing of materials and supplies." [Read related article: Surprising Ways Tariffs Impact Small Business (and What to Do About Them)]
Small business owners' outlook heading into 2019
While campaign season has a tendency to bring up anxieties and concerns for the future, small business owners are largely optimistic, riding the wave of continued economic growth for the past several years.
According to a separate Paychex report, small business owners' overall business outlook is up six points since the end of Q2, reaching 71 out of 100. Their confidence in the direction of the economy grew by five points to 65 out of 100. These are some other major indicators of small business optimism:
- Improvement in access to capital
- Ability to make new capital investments
- A moderate increase in confidence in the regulatory environment
The biggest challenges still facing small business owners include a tight labor market as the unemployment rate remains very low, as well as challenges finding new customers and tapping into new markets. Overall, though, entrepreneurs appear hopeful for the future.
"Elected officials who give people hope about entrepreneurial opportunity, ambition and the American Dream – candidates that communicate hope over fear – will have a better opportunity of getting elected," Richardson said.