Washington Times

What Democrats win in Georgia Senate runoff races means for U.S. small businesses

By January 8, 2021No Comments

(This post originally appeared on The Washington Times)

The Republicans lost both Senate runoff races in Georgia this week, which means there’s now a 50-50 split in the Senate with the deciding vote in any tie cast by the vice-president. So, in effect, the Democrats now have a majority, although slim, in both the House and the Senate.

So what does this mean for the country’s small businesses? It means our costs will be rising over the next few years. Buckle down, folks.

With a majority, the Democrats can now take over the leadership of many key committees and have a much stronger say in who gets approved for the president’s Cabinet. Of those Cabinet members, perhaps the person who will have the most impact on smaller firms will be the president’s new Labor secretary.

No one has been nominated for that post, although the leading candidates, which include Julie Su (the current secretary of the California Labor and Workforce Development Agency and a former California Labor commissioner), Bill Spriggs (who is the chief economist at the AFL-CIO) and even Sen. Bernie Sanders. None of these candidates, or any of the candidates Joe Biden is considering for this position, are considered to be pro-business.

So small businesses need to prepare for a continued push of a higher national minimum wage, led by the Labor Department. We will need to brace ourselves for an increase in the wage limit where employers are required to compensate certain employees for overtime hours. There will be a renewed concentration on workplace protections and safety and more freedom for employees to form unions.

Most importantly for smaller companies, there will likely be a re-visit of independent contracting rules which — like California’s recent AB5 legislation — may require employers to classify more independent contractors as employees, which means offering them more benefits like health insurance and vacation.

Speaking of health insurance and while it’s unlikely there will be major changes to health care law, there will definitely be a reversal of the Trump Labor Department’s orders that allowed employers to create potentially lower-cost association health plans and offer alternative, less expensive, high deductible, short term “skinny” plans to their employees under the Affordable Care Act.

Another concern for small businesses: Tax rates are sure to rise.

Mr. Biden will be unable to get major legislation around taxation through a Senate filibuster that requires 60 votes. But, through Budget Reconciliation which requires a simple majority vote in the Senate, he can push through certain tax increases that would be needed to fund his other spending initiatives. And bear in mind that if Mr. Sanders does not get chosen to run the Labor Department (he’s not a leading candidate) he would take over leadership of the Senate’s Budget Committee and have a powerful impact over these initiatives and how they’ll get funded.

Which means that individual, corporate, capital gains — and even Social Security — tax rates are up for grabs and would likely increase. Mr. Biden has always argued that his tax increases will impact the wealthy, which he’s loosely defined as households earning more than $400,000 per year. Many small business owners have working spouses that, when their income is combined, would surpass that amount and be exposed to potentially higher taxes. This will certainly have an impact on their spending, investments and hiring plans.

Finally, small businesses in certain industries will suffer. Those in the oil and gas industry will see a renewed push for alternative energies and restrictions on drilling, exploration and expansion. With Sherrod Brown in charge of the Banking Committee and Elizabeth Warren on the financial institutions subcommittee, lenders, mortgage brokers and other small firms in the finance industry will face more scrutiny and limits on their practices. Non-profits that lean conservative will certainly be curtailed. Retailers and restaurateurs that rely on hourly workers will see a renewed push both locally and nationally for higher wages and more benefits.

The upside is that, even with a Democratic majority, the Senate is still split right down the middle. As mentioned above, major legislation which includes most matters outside of budget approval, would need 60 votes to overcome any potential filibuster — assuming the filibuster rule continues to hold.

And there are plenty of centrist Democrats, such as West Virginia’s Joe Manchin, Montana’s Jon Tester and Arizona’s Kyrsten Sinema, whose voters in their states wouldn’t be too thrilled if they took an automatic party line on every vote, particularly if those votes leaned too far to the left. Those Democrats, along with middle-of-the-road Republicans such as Alaska’s Lisa Murkowski, Maine’s Susan Collins and Utah’s Mitt Romney will be the ones with the real power in the Upper House.

There is one other big upside and that’s market and trade stability. A Trump administration was very pro-business but it was erratic, chaotic, unpredictable and frequently absurd. Many businesses approved of Mr. Trump’s trade and economic policies, his opposition to regulations, his support of lower taxes. But few approved of his capricious behavior. President Biden will certainly be less business-friendly. But he will also certainly be less uncertain. And if there’s one thing that small businesses desire is certainty. Even if we’re not happy with the actions to be taken, at least we can plan for them.

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