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3 Ways Trump’s Proposed Policies Can Impact Small Businesses

 

President Trump’s administration could have a significant influence on the 28 million small businesses in America. Business experts have presented conflicting views on what the next four years could bring.  Nevertheless, entrepreneurs should brace for changes, both good and bad. Though details are uncertain, business owners can potentially expect fewer regulations, lower taxes and changes in the global marketplace.

 

Regulations

Many small business owners feel burdened by the number and intensity of federal regulations. They feel these regulations limit economic growth, restrict small businesses and cause people to lose their jobs.

Research shows 72 percent of small business owners consider government regulations a serious problem. Smaller, newer businesses have especially been impacted by government regulations as most start-up businesses spend $83,000 on regulatory costs in the first year and more than half of small-business owners have held off hiring a new employee because of these expenses.

In January, President Trump signed an executive order to scale back regulations on businesses. He promised to cut regulation by 75 percent by eliminating two regulations for every new regulation enacted. Under his executive order, there will be a zero-growth regulatory financial cost cap for 2017, so for every dollar a new regulation costs, agencies will need to find offsets of an equal dollar amount by eliminating or modifying current regulations.

Many small business owners welcomed President Trump’s efforts to ease the regulatory burden, others say the new executive order raises a number of questions.

 

FOR REGULATION REFORM AGAINST REGULATION REFORM
By scaling back federal regulations, and in turn cutting down costs, small businesses will be able to hire on more people and services. There is no official definition on what constitutes a regulation. Officials will not be able to count regulations or cut them easily.
Hiring local without the restriction of regulations will keep jobs and money within the U.S., increasing economic activity and the goods and services available. Agencies have been measuring the costs and benefits of major regulations, ensuring the benefits outweigh the costs. The order will block important health, safety and environmental protections without considering the benefits of these regulations.

 

Tax Reform

Small businesses dread tax season, as it brings complicated restrictions such as tax codes, franchising liabilities and health insurance requirements. Among some of the most intimidating regulations is the tax code.

President Trump plans to simplify the tax code by having every business pay 15 percent, a 20 percent reduction from the current rate of 35 percent. He believes cutting taxes will create economic growth and increase personal income, others argue because small business owners have their income taxes as individual income, they will not benefit from the tax cut.

 

FOR TAX REFORM AGAINST TAX REFORM
All individuals will benefit from the tax reform. Experts say, to ensure all entrepreneurs see a reduction in taxes, Trump will need to lower individual income taxes as well. 83 percent of small business owners have business income taxes as individual, not corporate, income. Big corporations and fewer than 8 percent of small companies will benefit from this tax reform – profiting the Big Box competitors.
Top earners, more than $699,000 a year, will see average annual tax reductions of about $215,000 under Trump’s proposed plan. Top wage earners could convert themselves into contractors to create a one-employee business and take advantage of the low tax rate.

 

Trade

Some small business owners benefit from the low costs to import raw materials and wide range of foreign customers, while others hurt from the overseas competition.

In an effort to increase the circulation of money among the states, rather than paying foreign partners, President Trump has proposed several trade policies that will inevitably effect small businesses. He has promised to implement a 45 percent tariff on Chinese imports and 35 percent tariff on Mexican imports; renegotiate the North American Free Trade Agreement (NAFTA); and withdraw from the Trans-Pacific Partnership (TPP), a trade pact that created a single market by eliminating tariffs on most traded products.

 

FOR TRADE REFORM AGAINST TRADE REFORM
Tariffs on Mexico will increase prices on imported Mexican oil, resulting in the purchase of more U.S. oil and benefiting U.S. companies.

 

The increase in tariffs on products from countries like China could ultimately raise prices, making it harder for small online sellers to see a profit. The tariffs could start a trade war that would hurt American jobs and exports.
Renegotiating NAFTA to favor American businesses will increase manufacturing and technology jobs, therefore increasing profits for U.S. companies. NAFTA has reduced import prices, created millions of new jobs through imports and exports, and increased economic growth by as much as 0.5 percent each year.
The TPP gives 9,200 foreign firms the right to sidestep U.S. laws that we rely on for a clean environment, safe food and good jobs. In the TPP treaty, there are provisions to help small businesses navigate export rules, trade barriers and red tape.
The TPP will increase the U.S. trade deficit in manufacturing, car assembly and car parts, in turn decreasing jobs created by exports and putting millions of American factory workers out of work. The TPP levels the playing field for American workers and American businesses by eliminating over 18,000 taxes that various countries impose on Made-in-America exports

 

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Depending on what type of business you own, these policies could be beneficial or detrimental. While outcomes are yet to be determined, to remain successful small-business owners need to keep a watchful eye on market trends, have their financials in order and clearly communicate business shifts to employees. From there, you can renew and revise internal processes to better fit the new business structure created by the Trump administration.

Looking for a partner to execute your small business growth plan, accomplish your vision and meet our investment criteria? Contact Evolution Capital Partners at (216) 593-0402 or by using our online contact form.

 

Posted by: Jeffrey Kadlic A co-founder and managing partner at Evolution, Jeffrey has spent the past 15 years as an investor and private equity professional with a true passion for working with dynamic small businesses. @kadlic

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