Dashboard: Don’t Sleep on the SSBCI

[Music] welcome to another 21 hats dashboard brought to you by our sponsor the great game of business I'm Lauren Feldman and I'm here with John arensmeyer who is founder and CEO of small business majority and advocacy group for businesses and entrepreneurs welcome back John good to be here Lauren always great to have you uh especially there's been a flurry of of news of late uh and in particular a lot of decisions coming out of the Supreme Court at the end of June uh some of that I think has gotten lost uh with all the presidential politics and everything happening uh I'm so happy that you're here uh to talk about what business owners should be paying attention to I'm hoping you can help us sort out what the impact might be and what if anything owners can do to prepare let's start with the the big one the the overturning of what's been known as the Chevron Doctrine uh I think correct me if I get any of this wrong but I think the most important thing to understand about that is that the court has basically taken power to interpret regulations away from federal agencies and given it to judges a lot of business groups have cheered this decision because they think it will mean less regulation I know you testified before Congress last week about this tell us what do you think well Lauren I'm surprised that business is um celebrating this because look businesses and particularly small businesses rely on regulatory certainty having regulatory process it bounces around from court to court with different rules for different jurisdictions and not knowing when and how decisions will be made it's incredibly disruptive secondly business regulation that impacts business requires a level of expertise and you want somebody making that decision who has expertise and and where there's a process for input everybody gets input into the regulatory process to ensure maximum Effectiveness combined with minimal disruptions third small businesses lack the resources to secure the legal expertise that they're going to need to run around the country constantly tracking and adapting to changing regulations as it bounces around and finally from a small business standpoint it puts them in a disadvantage Visa large corporations exacerbating the unfair competitive environment that already exists I should add this should be a bipartisan issue you know there are regulations that come out when there's a republican in office that progressives and Democrats don't like also so this isn't something that is just one party and it should be we should be focused on the on the certainty and the expertise just to make the point you just made the ruling that was overturned is a 1984 ruling that at the time was considered a conservative ruling it was unanimous I think it was written by Clarence Thomas um and back then the uh that ruling allowed the Reagan Administration to make adjustments uh through the federal agencies that it wanted to make to the uh Environ Environmental Protection act um so yeah you could argue that should be bipartisan but the other argument you do hear and I'm sure you've heard this I'm curious what your response to it is is that when it's the agencies under an Administration it automatically becomes political and uh if you're talking about uncertainty you get the uncertainty of you know things changing from one Administration to the next we've got the example of what's happened uh with the overtime pay issue Obama did one thing Trump reversed it Biden wants to go back in the direction that Obama went and now that's on hold uh because a federal judge uh stopped it isn't isn't that an a recipe for uncertainty as well look there are multiple levels of checks within the federal regulatory process and I I should add that the uncertainty these decisions are made mostly by civil servants and you're absolutely right whoever is in power in the executive branch is going to influence that but there are multiple levels of checks within the fedal regulatory process there's the overall um office of administration and Regulatory Affairs or IRA which is part of OMB uh which reviews government regulations and then there's specific small business checks there's a small business regulatory enforcement Fairness Act otherwise known as SAA that um has a check over EPA OSHA and cfpb regulations the small business uh administration's office of advocacy also plays a role so there are checks in the system but at the end of the day you're not going to get the level of um of uh uncertainty and um disagreement that you're going to get from one U Federal District Court to another uh it's just it's right now we can see with sort of form shopping for the these decisions um it just creates chaos across the country at least we have one regulatory body and decisions being made by civil servants with checks in place and um yes there going to be differences and that's why I don't think there should be a i part is an issue it should be bipartison uh we can wish for that system but but it's not that's not what we have and it looks like we're stuck with this for the foreseeable future what are you hearing from uh small business majority members I mean what what how how are businesses reacting to this and is there anything they can do to to cope with it well to the extent that they are affected by Federal Regulation they're concerned about uncertainty uh they're concerned that you know like it or not whether they like a regulation or not if it's if it's enacted by One Singular entity with all the checks that I just talked about they know they can rely on that look there may be there may be regulations they don't like but at the end of the day they're like okay we need to live with those and we need to build our business model around that and get investment around that and if that's changing depending on what court someone decides to go and file a lawsuit in um that's a problem and uh so it isn't a question of they like all regulations or they don't like all regulations it's a question of certainty and uh that's what that's what they're concerned about here's another example uh we've talked about this before when you've been here uh that's the uh the ban on non-c competes uh that was put into effect a federal judge in Texas I believe has stayed the ban um it this seems like the kind of ruling that is now highly likely to be upheld um if it should go to the Supreme Court um what do you think of that well we're not sure what's going to happen when it goes to the Supreme court but we can't have a situation where we wait for the Supreme Court to decide on every single rule and regulation um and we don't know what's going to happen with non-competes and by the way if it were to go to Supreme Court it would take a while um but again we have a situation where there's a judge in one of the districts in Texas um the decision is very limited to uh it only applies to the actual plaintiffs in this case and it's a it's a it's an injunction um to be decided later but again it just shows how Okay uh we've got to decision and now we're going to have courts weighing in differently we have to wait to go to the Supreme Court that's not a way to run a system it's not a way for businesses to be able to plan um I should just mention on the merits of it and we've talked about this before that you know we certainly believe that non-compete clauses are antithetical to the free fair and open um competition and you just look at the name the name non-compete it means you can't compete you know for I mean what else can I say I mean we need to have a a Level Playing Field where everyone can compete uh it's a significant impediment to entrepreneurship specifically starting and growing a business someone's working somewhere they want to go start their own business we're seeing 18 million new businesses started in the last three and a half years or two and a half years actually three and a half years I guess and they are um you know you want you want to help that process uh the having non-com stifles Innovation uh contributes to corporate concentration and we've talked about this before non-competes are not enforcable in California Oklahoma and North Dakota there is no evidence that not being able to um enforce non-competes has been economic imped I think it'd be ludicrous to assume that somehow the California economy can't function because non-compete Agreements are not allowed there's this says nothing about whether you can have a nonis a non um disclosure agreement uh a trade secrets agreement I we we encourage businesses to have those in place that is very different from saying you can't go and do something in your field start a business in your field next topic let's talk about something that I think's a little bit happier um and again something that we've talked about when you've been here before and that's the state small business uh credit initiative this is a big pot of money that we've we've talked about it it's been talked about for a couple of years I have it it's money that's dispersed through the states uh which I think causes some confusion I don't think there's widespread understanding of where this stands and what's available and what someone should do to check it out can you help us with that where does this program stand well let me say I mean it's it's it's a it's a great program it's $18 billion to going to the states and native tribes for Capital and technical assistance um 500 million of that specifically designated to technical assistance states are free to build their own programs um this is a prives of a very successful program that existed in the previous decade in this particular case it's targeted a business Enterprise is owned and controlled by uh what is technically called socially and economically disadvantaged individuals is essentially businesses in underresourced communities around the country obviously heavily bip businesses um that are owned by um women um and those in in in areas all over the country where the they don't have the same resources you might have on the coast or in some of the more successful urban areas um we're we're very involved in this and and you know one one of the issues is that there's a big disparity of implementation across the states uh you know California for example has embraced this they've got a lot of activity going on the the government has uh continued some programs that they'd had before and Incorporated this into it and then you go to The Other Extreme a set like Texas doesn't even want the money and then you have everything in between so what we're doing is we're we're working with c providers cdfis and others Community Development Finance institutions and others to help them understand how they can best U fit into the program with technical assistance providers so they can get the support and with small business owners to understand what their needs are and to um and to make sure that that those uh that's communicated and then we're working with the state agencies we're doing research into what is happening what's working what's not and trying to get that information in state agencies right now the first tranch of money is out there but there are two more tranches of money coming and we want to make sure that we're advocating for changes that reduce the friction in those programs and help get the money out there um again it's 50 states and a number of native tribes uh all have different rules and it does it does make it complicated and the good news is the states can ta the programs to um for their own particular needs but the challenge is that there's not one size fits all in terms of uh what needs to work here obvious VI ly It's Tricky being 50 states do you have a suggestion for somebody who wants to figure out what's going on in their state how do you find out well we are we're not we're active in about 11 states um so people can uh should go to our either our Venture eyes.org site or small buus majority.org and even if you're not in the 11 states where we're most active um we can help we can help direct you you know the problem is the ssbci program it's not a retail program so you can't just go online as a business oh ssbci it's all being the money's being funneled through saate program so I definitely checked with your the the region even though this is not an SBA program the regional um SBA offices can be helpful um and then you know check with your state um State Economic Development offices um and um you know you you there you can you're right there isn't one place on for all 50 states to go um on the on the web but um please contact us and we can certainly be helpful there is it worth checking if you're not uh in an part of an underserved Community yes the money is not exclusively for under uh resourced communities um and and look one of the challenges that um you know there's a lot of inertia to try to get the money out quickly and you know we want to make sure the money is actually going to the smaller businesses in the most underresourced communities so um there's yeah I mean I think it's There's an opportunity for everybody here this is not limited to one particular group but it is definit Ely the intention is to get money to use a guarantee with by the way a 10 to1 leverage of with private dollars to First loss guarantee U so that lenders uh will provide this money Capital providers and by the way there's a chunk of this as Venture as well as um as as debt financing um we'll get it into the hands of people who are not as likely to be able to get that money through traditional either venture or Bank sources so um at the end of the day just check with if you're working with a lender now check with them because at the end of the day they're also combining these guarantees with other programs they have again it's not like you can go to a bank or a cdfi and there's a ssbci specific program they're using the money and the guarantees to supplement the work they're doing anyway so reaching out to um lenders in your communities particularly to cdfis and other mission-driven lenders um is the way to go and again it's not like there's as a jci itself is not it's not a retail brand it's really there to to support uh the money that's being loaned and the technical assistance that's being provided already that's a great tip all right last topic for today uh there's a big battle looming that's getting closer by the day over the expiration of the Trump tax cuts uh this comes next year 2025 if they just expire uh a lot of tax rates will go up and including for uh business owners if they're extended of course our national debt will continue to expand what should business owners be watching for and and thinking about as this plays out well as you suggest a lot is going to be on the table I mean everything that was in the um 2017 so-called Trump tax bill um is is most of it is expiring at the end of next year so a lot is going to be on the table and there will be other tax issues as well our biggest focus and the one that's probably most directly impacting majority of small businesses is the so-called 199a pass through business income deduction right um right now businesses can deduct 20% of their pass through income with certain limitations particularly in the higher income levels but in any event um but when you do the calculations you realize the way the system set up now is 73% of the current pastu deduction benefit flows to the largest and wealthiest 5% of businesses um more than a million businesses with more than a million in AGI Which is less than 1% of all business owners claimed over onethird of the deduction so far uh Financial benefits um to a pass through entity making 500,000 or 20 times the benefits to a business making 75,000 and you know those kind of Statistics go on and on this is really not the best way to support true Main Street businesses you've got an average profit of $33,000 so what we're proposing instead and some people want to eliminate this and we're like you know no let's let's fix it let's let's make this work so we're proposing a bottomup $25,000 we might call a standard deduction with a phase out for individuals earning more than 400,000 and um this week makes it more of a bottom up than a top down where the bulk of the benefit would go to the smallest Main Street businesses and not um the way the money is being distributed now what kind of reaction have you started spreading the word that you're proposing this um well uh uh a little bit of a teaser here we have been doing some research um we've got some preliminary findings I can't really share them we haven't really done the the vetting and Analysis of them yet so that's for another for the next time we chat Lauren but um but um basically there's um there's there's there's yes there's real interest in majority support for something that would be more bottom up than top down again uh it sounds good you say yeah you can deduct 20% of your income but who's getting most than income and and the rates are much higher for those who are um in the higher brackets so when you run the numbers you get the the statistics I just mentioned and if you do a bottom up uh some you know we put this out there I mean we're happy to talk about variations on this we're looking for something that's more bottom up than top down and yes it's of course it's going to be attractive to um to people who aren't making that much money you know the um study just came out that showed that um claimant with under $100,000 in um income the average deduction for them is $22,000 um so and 20% of that is is what $400 benefits so um you know right now we can we can fix that um by making this a much more bottomup system um there going to be other provisions on the table as well but those are the that's the one we're most focused on you are going to get push back from those businesses who have come to rely on that 20% % uh deduction obviously and you know their voices will be heard it's I hate to see a battle within the small business Community um how do you anticipate handling that well look at the end of the day it's going to you got to figure out who's going to benefit more from a bottom up versus this current situation and I think um it's pretty clear you're going to have um a much higher number of businesses that will benefit from having some kind of standard deduction or some kind of other related bottomup benefit than than the current system so uh we need to you know we need to make sure that we're making the case that the benefit to real Main Street businesses average profit of $33,000 is going to um be much better with a with a reformed and revised system uh look there's there's people out there who want to get rid of this totally because you know as you mentioned a deficit issue and and what we're proposing is not going to be free either from a from a cost standpoint and we're all about look if you're going to spend dollars or you're going to reduce Revenue do it in a way and you're going to Target it Target it to those who need it the most don't Target it to businesses that that don't really need it so uh I think it's going to be a question of of who's going to benefit more from bottom up than a top down all right uh John thank you so much John arensmeier is founder and CEO of small business majority this episode was brought to you by the great game of business which helps businesses use an open book management system to help build healthier companies you can learn more at Great game.com thanks for taking the time John thank you Lauren have a great week everybody