Dashboard: A Glimmer of Hope for Small Businesses

[Music] Welcome to another 21 Hats dashboard. I'm Lauren Feldman and I'm here with John Arensmeer who is founder and CEO of Small Business Majority, an advocacy group for businesses and entrepreneurs. Welcome back, John. Good to be here, Lauren. Always great to have you, John. I know you've been reaching out and talking to small business owners. Uh this is such an interesting difficult time. What are you hearing? first and foremost that the biggest concern are these tariffs and um I know you've done a great job covering that um in 21 hats um and we've done a lot of um you know continued outreach and conversations with business owners and trying to communicate their voices to policy makers on both sides of the aisle and to the administration and um you know I know we've talked about this before on previous podcasts so I'll just leave it that that does continue to be the biggest um issue. Um that said um we have a quarterly voice of Main Street uh small business small business survey we do of our uh network and uh we just released the results of uh of the most recent survey we did and we we we asked them about other issues because we've done spent so much time covering tariffs otherwise and we asked a lot about access to capital and access to capital continues to be a huge concern of small businesses. Um we found that 50% of small business owners have taken steps to access capital recently. Um only one-third have secured it and um they are um you know the one quarter say that the funding that they did receive was very was insufficient. Do you know how those percentages compare with previous time periods? Um it's I mean the this research was done earlier this year. So, um that was fairly consistent with um with previous um surveys we did. Um and um but I think we're going to see unfortunately we're going to see those numbers um tighten up even more going forward. Uh and um you know, we just want to emphasize this continues to be a huge issue and a huge a huge issue for um the many businesses in our network who are smaller and um are in uh underresourced communities. So, we can't forget that. We also asked them about, you know, we continue to push for truth and lending um legislation in states around the country and 87% say that they would really welcome um much more clarity when they're looking at at financial products. Obviously, there's a lot of predatory products out there when they're unable to get um funding from traditional sources, whether that's missiondriven lenders or community banks. um you know they they're they're sort of ripe for the picking by um transport lenders and um they just want they just want information. They just want to know maybe some of these alternative loans are okay for them but they want to know uh what's the APR and and what's the what do they actually have to repay so we've been working on that uh states across the country. Um, and the other thing we did ask him about was the impact of um, government um, uh, sort of the curtailment of government spending. I know uh, we're probably going to talk a little bit about the the president's budget that he submitted a week or two ago, but um, twothirds of them uh, really oppose a lot of the uh, cuts to government programs and um, 78% uh, are concerned about cuts to the SBA. Do you have any sense what's really driving the concerns among business owners about the lack of access to capital? Uh is it is it getting more difficult do you think because of changes in the rules uh changes in um the economy or uh you know what's driving that concern? We don't have a system that is set up to provide capital to vast majority of the smaller businesses particularly those in underresourced communities. Um and so uh this is just a a perennial problem and um it's one that you know it's as small business owners have been pretty resilient coming out of the pandemic. we've seen a lot more um incredible amount of business formation, but this continues to be a drag that there just there just isn't a ready way for them to get access to responsible capital. And um I know we're going to get into it, but um cutting programs that that um underwrite under that support uh that effort is not going to be helpful. the some of the rules that were changed are are you know in terms of the organizations that focused on underrepresented entrepreneurs. Uh I think some of those programs have just been cut. Some of them have changed the way they reach out to people. They're using different language. Um and I think it's it's based less on demographics and and more on financial need perhaps. Where do you see that? Well, we've seen cuts across the board and I can go do a quick summary here and um and then get kind of get back to where I think is going on. So, the SBA, the Small Business Administration, cut their workforce by 43% while loading on responsibility for $1.6 trillion in student loans. So, and invariably that's going to that's going to hurt um service. Um they've cut uh a number of programs including um the women's business centers and SCORE. Um you know they've supported over the years uh small business development centers, women's business centers and SCORE to help provide technical assistance to small businesses. So that's going to hurt. Uh we're concerned about uh there've been uh cuts to the workforce at the Treasury Department and they are still responsible for dispersing the money for the state small business credit initiative uh which provides a 10 to1 leverage the private public funding and has been successful. Um and we're concerned that uh that money isn't going to get out the door. It they're sitting on um about $4.5 billion dollars of u uh undispersed money. Uh so we're concerned about that. uh the department of commerce eliminated the minority business development agency and uh that included $70 million in essential business support and they are also sitting on SSBCI money for technical assistance that hasn't been dispersed. Uh there been cuts at the US Department of Agriculture. So look, you asked about, you know, characterization of these programs. Um the way we see it is that these programs are benefiting the business owners in communities who need it the most. And the way we see it is that DEI is being used as an exc as a as a tool as a club to get rid of the programs. U we don't have a problem if you want to change the names. Um we we're all about is the money going to where it's needed the most and getting hung up on what it's called uh whether it's DI or something else. No, it's about where's the money going and and when you cut money from the um Minority Business Development Agency, when you cut the whole you really kill the whole agency, you're cutting off money that's going to where it's needed and um focusing on what it's called um doesn't really solve the problem. Do you have any hope that these decisions can be reversed? Well, what I didn't mention and what we did see is that there was an attempt to eliminate the CDFI fund and um there was immediate push back from Capitol Hill, a bipartisan push back um from there was a pretty wellorganized CDFI caucus um Republicans and Democrats. Remind us what the CDFI fund is? It's a well community development finance um institutions and they are set up to provide emission driven loans to uh communities that uh need it the most and a lot of their funding comes from uh private sources from uh financial institutions that uh do so in order to get credit under the community reinvestment act but they also get direct support from the government via the CDFI fund and um so u there was immediate push back from um the Hill on this uh led by uh Democratic Senator Mark Warner and Republican Senator Mike Crapo who's the chair of the um finance committee, Senate Finance Committee and and a whole host of other Democrats and Republicans signed on. That's an example of if you if you make the case of what the need is and that the needs being taken away, you can get bipartisan support. The only way these programs are going to change is if folks in the administration or Republicans on Capitol Hill alongside Democrats uh are pushed back. And so the way we're going to get um push back here, the way we're going to push back on these cuts is to make the case through the voices of small businesses, through the research, through the data. And that's what we're doing. And uh we're simply saying, hey, this is the impact that this would have here are voices of small businesses and voices of business support organizations across the country uh who um are going to suffer and their ability to serve these businesses are going to suffer. We have a coalition we've built now 170 business support organizations and CDFIs around the country who are working with us to get their their voices and the voices of small businesses into the into the dialogue. So um that's that's the way that's the way this is going to change and um that's what we're doing. Got it. You also did another survey uh related to taxes. Correct. We did and um we we did the survey and as we all know there's a big debate going on on Capitol Hill now about um continuing the um uh Chiji uh the the u the 2017 tax bill and what's going to continue and what's not. And so um and by the way what I just described in our main in our voice of Main Street that's our network. This was a poll we did of all uh small businesses out there. And I want to stress that we we when we do this, we ask um we ask political affiliation. 71% of the Republicans are are or lean Republican, 36% are lean Democrat, and 21% are true independents. So, it's a pretty diverse sample with a slight plurality toward Republicans. So 87% um said that they agreed that providing small business with tax cuts allows um owners to reinvest in their companies, create more jobs. Only 43% felt that was the case with large businesses. Um they u feel that the tax system favors large corporations over small businesses and uh seven and 10 feel that large corporations don't pay their fair share of taxes. Um we asked about um we have a proposal which is actually now been codified into a bill that was introduced this week um in the house that would take the small business um the one so-called 199A uh small business tax deduction and reform it. John, I I think most people don't know it by the uh the term you just used. This is the 20% pass through. It's a pass through. It allows pass through entities to deduct 20% of their um of their pass through income of their qualified business income right off the top. Right off the top. But the if you do the math, 73% of the financial benefit goes to 4.5% of of business of of pass through entities. So you're really benefiting primarily large pass through entities at the top. Not all pass through entities are small businesses. Correct. Right. Correct. Well, we wouldn't consider them small businesses. It all depends how you define it, but they're if you're if you're not if if you're set up to as an S corporation or other kind of pass through entity, a partnership, and you're um paying taxes through the income to your your owners, then uh you're the owners are eligible to take the U deduction. And so, you do the math and it's pretty simple. the large vast majority of the benefit goes to a very small number of businesses. So we have felt for a long time and we've been advocating for a bottomup solution and this bill would basically provide a $25,000 quote unquote standard deduction. The first $25,000 in business profit can be deducted. Period. And then it has a cap on if you uh have if you the owner have um um income um of more than um 400,000 for joint filing jointly um well between 4 and 500,000 this phases out and if a single filer would be phasing out between two and 300,000. So, it's basically saying if you want to support small businesses, have a provision that actually benefits the smallest businesses where you're going to have the biggest impact. You're going to have the biggest impact on the economy, going to have the biggest impact on hiring, and it is a true small business benefit. And so, that's what um that's what we've been advocating for. And there's now a bill that's been introduced. And um we you know we see this as an opportunity to have a conversation with those who are advocating for just purely uh extending the law as it is now. Um we may end up somewhere in the middle. We may end up this may be an opportunity to have a dialogue. Um we're not saying it has to end up exactly the way it is is in this bill that we support. But we want to you know we want to stop calling the way it is now a small business um deduction. It's a pass through deduction and it really should be a pure main street small business deduction as it is now. My sense and you know I follow this stuff pretty carefully is that too often the conversation is just about whether you keep that deduction or not. And if you if you're against the 20% pass through deduction then you're uh opposed to small businesses. That seems to be the terms of the debate that I hear most often. Do you have hope that this is going to catch on and change the the terms of debate? Well, we've heard that before. Small business is the most um respected institution in this country. Um across, you know, bipartisan u and so if someone is trying to justify something, they'll say it's good for small business. Um, and yeah, there's a small benefit the way it is now to at the bottom end to small businesses who have some qualified business income, but it's much it's for it's forth by the benefit to the larger entities. So, um, we want to say, hey, you want to talk about a real small business benefit that's really going to benefit Main Street, the vast majority of businesses that have income such that they would benefit from a bill like this. Um, and we um, uh, happy to have that conversation. And it really depends on who you want to benefit. If you want to benefit the smallest businesses, um this is a this is a an approach that's going to do it better. If you say no, we we just want to support, you know, large passive entities. Well, um you can you can call them what you want, but that's where the benefits going. I should add, and we do not have a score on this bill yet, so I can't say this definitively, but we've done some back of the envelope calculations, and we believe this will also be um a smaller hit on the budget than the way that 199A is right now. So, there's actually be a benefit um to the u to the budget deficit. I can't say that for sure. We don't have a Congressional Budget Office score yet, right? Let me ask you this. I I certainly take your point that the the proposal you're making would benefit a much larger group of small businesses. Um, is there an argument to be made that the system as it exists now benefits the most successful businesses and that's a good thing? You're placing your chips on businesses that are succeeding and that's likely to produce more jobs and more growth. Look, we have an economy that has a wide range of businesses, but the vast majority of small businesses are small and they're also collectively represent almost half of the economy. They're also the ones that we just talked about access to capital. They're also the ones that have uh the biggest challenges in terms of of growing and so they need to benefit. We've seen um this incredible um surge in I think about what 17 million new business formations in the last 3 or 4 years. We want to we want to give support to those businesses. What what's the role of government? The role of government is to step in and plug gaps and provide support where it's not being provided in the private market. I would suspect the vast majority of pass through entities that are getting benefit from this um deduction right now, they don't have a lot of trouble raising money. um they're in a position to withstand tariffs um better than the very smallest businesses. So if you're wanting to so the the goal is to provide this support to the businesses who need it the most and you can be very successful Lauren if you start off as a solo business and you grow to five employees and you're serving your community and there's a whole lot of you across the board across the country. So this isn't a question of defining what what's success. Success is any business that comes in um has a product that people want uh that hires people and um you you you spell that out across the the millions of businesses across the country. That is collectively just as much success as as a large entity that's that grows and now doesn't need support from government the way maybe it did at one time. Well, I hope that conversation reaches the the people that need to hear it because too often I I just hear it's if you're for small businesses, then you want the 20% pass through deduction and that's the end of the discussion. Well, you need to look at the facts and you need to look at the, you know, just run the math and it it's as simple as that. And then you make a decision. What do you want to do? Do you do you want to support the largest businesses that that don't um that already have you know advantages and maybe due to their hard work and success? More power to them. We do not want to hold them back. But um or do you want to say hey where's where's where's government needed the most? Where are their tax benefits needed the most? And we certainly um believe that they they're needed the most in the businesses that are are newer and starting up and attempting to grow. You mentioned the proposed budget that President Trump recently uh released. Obviously, this is not likely to fly through the legislative process in its current form um and go straight into law, but it does offer a look at his priorities and you know where the conversation perhaps starts. What do you make of it? Well, a lot of it tracked some of what I've already a lot of what I've already talked about and the cuts to the program. So if you can kind of look at everything I described, the SBA and uh Treasury and Commerce, the specifically the Minority Business Development Agency, agriculture, um and you can see um you can uh you can track that tracks with the proposed budget cuts. Uh the other piece of the budget that is alarming is that it's going to you know we now see that it has engendered conversation on Capitol Hill on how to pay for it. And one of the ways things that has popped up is cutting Medicaid. Uh well actually se over 7 million business owners and employees um are on Medicaid and we all know healthcare is continues to be a huge stress for small businesses um and it's a hindrance to their growth. So um you now you now put pressure on the system where you now have a conversation about cutting an essential program which by the way we have seen there are plenty of Republicans on Capitol Hill who are not that happy with this. So um we are hopeful that there's going to be a robust debate and conversation and that we can forstall this because um Medicaid most people may not realize is also a small business issue. The other small business issue, and again, this is going to when you when you have a budget that um puts pressure on on these programs, is the premium tax credits under the ACA uh that were they've been in place for the last three or four years. They run out at the end of this year, and that is a it's a sweet spot of um uh of businesses who are um getting those premium credits now who wouldn't get them if we revert back to the way it was before. And that includes a lot of entrepreneurs, a lot of small business owners. So, um the the exchanges right now uh over half of the participants are small business owners, employees, and self-employed people. So, um, again, this is all it's all connected and, um, you know, when you're when you're putting forth a budget that is going to require cuts to these vital programs in order to get close to and we're not going to have the balanced budget, I'm sure, but it's gets even, you know, that it doesn't completely blow the deficit out um, the doors off the deficit. Um, you're putting pressure on programs that the smallest businesses really need. You're making reference to a number of issues that, as you said, are not traditionally seen as small business issues. What can be done to get legislators and people in general to see them as small business issues? Well, that's our job, Lauren, is to make sure they're hearing the stories and that they're getting the facts and that they're um they're hearing directly from business owners. Uh I think I talked about this on a previous podcast. We had a fly in earlier this year where we brought small business owners to the capital. We met with Republicans and Democrats and we just wanted them to hear the stories and hear what their needs are. um that is at the end of the day what it's going to take and um you know yeah I mean things may not be characterized as small business per se but it's up to us to help small business owners communicate to policy makers that know these are actually programs that we need that we that we benefit from that really help the entrepreneurial economy help the 17 million new businesses that have started in the last couple years and um we're going continue. That's that's what we do and uh we'll talk to anybody and um you know we're hopeful that um there will be some bipartisan recognition of that. Again, we saw that with the response in the cuts to the city of funds. So that was encouraging. So you're feeling a little bit optimistic as with most small business owners. We have to be optimistic and uh have to be resilient. Um there are a lot of headwinds. We've talked about them. Uh and uh but uh yeah, I mean we are optimistic that shedding a light uh on small business needs is going to be the way to to push back on these headwinds. John Ironsmeer is founder and CEO of Small Business Majority. Thanks for taking the time, John. Thank you, Lauren. Have a great week, everybody. [Music]