President Obama’s State of the Union address Tuesday covered a lot of issues that are important to small business including the tax code, minimum wage, immigration and the difficulty some owners have finding workers with the right skills.
Here is a look at some of Obama’s proposals, and how they could affect small business:
SIMPLIFIED TAX CODE FOR SMALL BUSINESSES
Obama talked about creating a tax code that helps small businesses spend less time filing out complicated forms. It’s really not the forms but the code itself that’s the problem – small business owners have long complained about the complexity of federal tax laws and the time and money they have to spend to keep up with changes. A survey last year by the National Small Business Association found that more than half of small business owners – 56 percent – said administrative side of taxes was a bigger burden than actually paying taxes.
“The overhead on our ability to keep up with the tax code is super-challenging,” said Ryan Howard, CEO of Practice Fusion, an electronic medical records company in San Francisco. He estimates that 5 percent of his expenses go toward dealing with taxes.
Obama wants to raise the federal minimum wage to $9 an hour from $7.25. While Obama noted that 19 states plus the District of Columbia have a higher minimum wage than the federal government, all the states except for Washington have a minimum wage below $9. Washington state’s hourly minimum wage is $9.19.
“It will be a 28 percent increase in my payroll each year,” said Sean Falk, who owns 12 franchises including Mrs. Fields cookies and brownies – and Pretzelmaker – shops in four states with minimum wages ranging from $7.25 to $7.85 an hour. Falk said an increase to $9 would force him to shutter his less profitable stores, and could keep him from opening more locations.
Obama said that a full-time worker making the minimum wage earns $14,500 a year, which puts a family below the poverty level. But Falk says his workers tend to be teenagers or people wanting to pick up some extra money. All work part time.
There were these 3.8 million workers with wages at or below the federal minimum in 2011, and about half were age 25 or younger, according to the Labor Department. That accounted for 5.2 percent of all hourly-paid workers. It’s not known how many worked for small businesses.
An increase in the federal minimum wage could pressure employers to give raises to all their workers – even those who already make more. Higher paid workers who see co-workers getting a big percentage increase, may feel like they deserve raises, too.
“You’re going to feel the need to bump up everybody,” said Todd McCracken, CEO of the National Small Business Association, a lobbying group. That could heat up inflation, which was tame in 2012.
Obama called for changes in immigration laws that would attract entrepreneurs and engineers to the U.S. Under current laws, not only can it be difficult for someone to come to the U.S. to start a business, but many foreign students at U.S. universities are forced to leave the country when they graduate – and take the skills and knowledge they’ve amassed back home with them.
Small business groups support immigration reform that would make it easier for highly skilled immigrant entrepreneurs to obtain citizenship for several reasons. It would help with a shortage of skilled workers. New entrepreneurs can create sales opportunities for existing businesses through buying products and services needed to run their companies. And new immigrant entrepreneurs would also create jobs and that would aid the economy.
“If we can find highly skilled, highly trained people to come here, that could be a linchpin to future economic growth in this country,” said the NSBA’s McCracken.
Immigration reform would relieve small businesses of the administrative burden that goes along with hiring a foreign worker, said David Link, chairman of ScienceLogic, a company that makes software for what’s known as “cloud computing,” which allows companies to use applications on the Internet instead of their own computers.
“They don’t make it easy on me as a company trying to get someone though the process of a work permit,” said Link, whose company is based in Reston, Va. “The costs of getting someone through a work permit are significant.”
Obama also called for stronger borders to cut down on the number of people who enter the U.S. illegally. That could be a negative for companies that rely on workers living in the U.S. without legal permission, for cheap labor. But it could be a positive for companies that avoid using illegal immigrants to save on wages, but have competitors who do hire them. If all workers can demand the minimum wage without worrying about immigration issues, it could help level the playing field because labor expenses would be more uniform.
Another issue: The National Small Business Administration noted that changes in immigration laws could create an administrative burden on employers by requiring them to verify with the government that their workers are eligible to be employed in the U.S.
CREATE A NETWORK OF MANUFACTURING HUBS
Obama said the government is expanding its program to create manufacturing hubs to bring jobs to parts of the country that have lost businesses to global competition. The first hub, in Youngstown, Ohio, opened in September and was backed by a $30 million government grant and money from companies and nonprofit organizations. It is training workers in a high-tech manufacturing process known as 3D printing. Obama said there will be three more, with businesses partnering with the Pentagon and the Department of Energy. He also said he would ask Congress to create a network of 15 of these hubs.
Obama’s comments about more manufacturing hubs answered calls from small business for government help in bringing manufacturing jobs back to the U.S. and in finding workers who have the skills required for changing technologies.
“We’re very happy that he emphasized manufacturing,” said John Arensmeyer, CEO of Small Business Majority, a lobbying group. “All of our polling shows small businesses support government help for that.”
Manufacturers were intrigued.
“I’d love to know the details about what that includes – it may be a very good idea for the country,” said Mike Pearson, owner of Union Packaging, a Yeadon, Pa., manufacturer of paper packaging for the food industry.
SPENDING ON INFRASTRUCTURE, CLIMATE CHANGE AND ENERGY
Obama proposed a program to start making the most urgent repairs and upgrades on bridges, pipelines, ports and other parts of the nation’s infrastructure. But the big picture approach wasn’t reassuring to some owners.
The Detroit manufacturing plant where Corridor Sausage makes its products is about 80 years old and isn’t energy efficient, said Corridor’s co-owner, Will Branch. He would have liked to hear Obama proposing grants to help companies like his save energy.
“We need grant money toward replacing our equipment,” he said. Branch is interested in using solar power and recycled rainwater, but can’t afford it.
And Link, the ScienceLogic chairman, believes the nation needs to upgrade high-speed communication networks to make them faster.
“We’re not keeping up with the rest of the world,” he said. “The Pacific rim is head of us in mobile technology, in high-speed communication.”
Obama noted that the U.S. has become more energy self-sufficient. But he called for a greater reliance on clean and renewable energy sources like solar power, and for more research to help the company move away from an oil-based energy economy. He linked his proposals about energy with concerns about what energy consumption is doing to the global climate.
The devastation caused by Superstorm Sandy last fall showed how climate change can affect small business, Arensmeyer said.
“The solutions for climate change are good for the economy.”
Throughout his address, Obama talked about the need for improving the skills of U.S. workers. His comments on immigration reform and manufacturing hubs dealt with the country’s need for highly skilled workers. He also proposed education programs that would help create a more skilled work force in the future.
There is a need for more skilled workers. Many surveys of small business owners – including the monthly survey conducted by the National Federation of Independent Business – have found that business owners can’t find qualified workers for some of their open positions. Owners of high-tech companies and highly specialized manufacturers are among those that have complained about their inability to find workers with the right skills. Many have to do a lot of on-the-job training.
“We’re bringing people from school and we’re bringing a lot of their skills higher,” said Ryan Howard, the CEO of Practice Fusion.
But Obama’s approach may not be fast enough. Small businesses need workers with better skills now.
“Some of the comments he made about technology are years down the road,” said Rudy Ramon, owner of Artesia Springs, a San Antonio-based company that sells bottled spring and purified water. “What we need is to implement things to help us right now.”