Several months ago, Congress decided to impose across the board cuts to government operations as a compromise for raising the statutory limit on federal debt should the Super Committee fail in their task to find a bipartisan solution. These cuts are extreme and are seen by both sides as an incentive to bridge the partisan divide and find a solution. The deadline set by legislation is January1, 2013. Should Congress and the Obama Administration not find a way forward by then, automatic cuts to government agency budgets across the board, known as sequestration—some as drastic as nine percent, as in the case of the military—will take effect.
The results could spell disaster for minority and woman business enterprises (MWBEs). This is particularly true for those that rely on the defense supply chain, even indirectly. MWBEs are major players in the defense industry and it is a sector with well-established supplier diversity programs. MWBEs involved in the defense supply chain or that have a customer base made up primarily of service members will likely see their businesses impacted negatively by a decrease in demand.
The nine percent sequestration cut will be on top of another nine percent cut already planned for the Department of Defense. The military will lose just shy of one fifth of its funding, an amount equal to nearly $1 trillion over the next ten years. The economic consequences will be profound.Alabama, for example, has predicted that a reduction of $1 billion in military spending in their state could have a negative economic impact of $2.5 billion. This figure does not account for the costs associated with the decrease in consumer goods receipts that will come as military personnel and their families leave the state.
In addition, lawmakers will be deciding which tax breaks ought to expire, if any. These include a two percent social security payroll tax, and the Bush-era tax cuts on personal income. The Congressional Budget Office expects 53 percent of all “flow through” businesses—where business income flows through to the owner’s taxable income—to see tax increases should the marginal rate tick back up. Further, small businesses may see the amount of bonus depreciation they are allowed to claim shrink from 100 percent to 50 percent.
Nearly everyone agrees that if Congress is able to draft a long-term tax and spending plan, even one that includes tax increases, it will be the first step toward economic growth and recovery. Most of us MWBEs are classified as small businesses, and are likely to have our bottom lines disproportionately affected by new tax liabilities. So, call, write, email your Congressional representative. Encourage them to work together for a bipartisan solution.
I and the staff of MBE magazine wish you and yours a happy, healthy holiday season and a prosperous New Year.
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