In the Nation's Interest
Failure To Raise The Debt Ceiling Is Bad For Business
Headlines have dubbed it "unthinkable," and businesses small and large have urged
lawmakers for months to agree soon to ensure the country doesn't default on its debt.
But next week's August 2 deadline to raise the federal debt ceiling looms, and a recent
deal that could have resolved the issue fell through because some lawmakers couldn't
abide elimination of special tax breaks used mostly by the most affluent. It's alarming
that lawmakers have taken the debate so close to the wire, considering the havoc a
default would wreak on small businesses and the economy as a whole.
With each passing day that politicians fail to make a deal, economic uncertainty grows,
shaking the environment for small and large businesses alike. Unfortunately, the clock
is still ticking and that last minute is fast approaching.
There are myriad reasons why we must not default on the debt: skyrocketing interest
rates, an across-the-board credit freeze--essentially total financial collapse. While
much of the debate has focused on big businesses and Wall Street in particular, which
have plenty on the line, small businesses will suffer even more from a default. Small
businesses don't have the means to weather an economic crisis in which many big
businesses can thrive, as the aftermath of the recession has made abundantly clear.
Many small businesses that already are scraping by in our sluggish economy are
financed with variable-interest-rate loans - unlike the largest businesses, which can
sell their own fixed-rate long-term bonds in the market. If the nation defaults and
interest rates spike, those small businesses will be the first in the line of fire.
While there were signs of progress last week talks fell through over the weekend.
This is incredibly discouraging, considering lawmakers have a mere five days to reach
Some of the proposals reduce the deficit through significant cuts and revenue-raising
measures. Now that there is more than raising the debt ceiling on the table, lawmakers
must realize the long reach of their decisions as they negotiate a deal. The choices
they make now may have a large impact on our fragile economy's fledging recovery.
Key decisions must be pragmatic and carefully considered. If a deal doesn't spread
the burden fairly and evenly, the consequences could be almost as bad as missing the
deadline and defaulting on our debt.
Compromises that extend the debt limit for the long-term must be as balanced as
possible. A final deal must include a mechanism that allows for revenue-raising
measures to be included down the road. A plan offered by a bipartisan group of
senators known as the "Gang of Six" provides a good framework to do this. They close
inefficient corporate tax loopholes to raise revenue. That approach eases the burden
on firms that now pay relatively more, especially small businesses. By doing this,
business tax rates could be lowered to allow now-heavily taxed firms, including small
businesses, to keep more of their profits in their pockets, helping them to expand, grow
Other measures being considered, such as curbing waste, fraud and abuse in Medicare
and reforming the physician payment system, known as the "doc fix," will also help
stabilize the deficit without harming small businesses or depressing consumer
spending--a key concern for entrepreneurs. Small business revenues, especially, were
greatly reduced during the recession and have barely recovered. It's crucial that any
budget cuts included in a final compromise not slow small businesses' sales. Doing so
would stifle job growth and halt our economic recovery.
Watching sound proposals fail because of today's hyper-politicized environment in
Washington is beyond frustrating. Some lawmakers are using small business as cover
to protect tax breaks for the most affluent by claiming small business owners are
included this group. In fact, the vast majority of entrepreneurs and even many highly
taxed large businesses will not be affected if these breaks expire. Lawmakers are
simply putting special interests above the success of our nation's job creators. This
situation must change. In the waning days before the August 2 deadline, lawmakers
must put the nation's economic solvency before partisan politics and remember the
needs of the economy, dynamic businesses, and consumers as they negotiate. Many
business owners simply won't survive if they don't.
John Arensmeyer is the founder and CEO of Small Business Majority (SBM). SBM is a
national nonpartisan organization, founded and run by small business owners, that
brings the voices of America's 28 million small businesses to the public policy table.
Charles Kolb is the president of the Committee for Economic Development (CED). CED is
a non-profit, non-partisan organization of more than 200 business leaders and university
presidents. CED promotes policies to produce increased productivity and living standards,
greater and more equal opportunity for every citizen, and an improved quality of life for