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Five Big Issues for Businesses Heading Into the 2018 Midterms

Management
Article
10/24/2018

Let's agree that — for most small and mid-sized business owners — things are going pretty well. Optimism is strong and most of the small business owners I talk to are happy with the economy and very busy. But that doesn't mean that they're not faced with issues. As the midterms approach, it's becoming clear that whoever takes control of Congress will have a significant impact on the growth and profitability of many small and mid-sized companies. If you're one of us, here are five big issues you should be watching.

Wages

The economy is growing at a healthy clip and unemployment is at its lowest level in decades. But still, wages aren't rising by as much as many had expected. In fact, the latest Paychex | IHS Markit Small Business Employment Watch found that wages increased just 2.3 percent over the past 12 months, barely keeping up with inflation. Stagnant wages mean stagnant spending and concerns about a better quality of life among voters.

What does this mean for the midterm elections and beyond? Many Democrats support following the lead of dozens of states and raising the federal minimum wage, with some even supporting a $15 per hour national rate. Paid time off could become mandated at the federal level. The minimum salary threshold for EAP white collar exemptions from overtime requirements is headed for an increase. A changeover in Congressional control could lead to more power for labor groups and an increase in employment regulations geared toward providing higher benefits and pay to employees.

Tax reform

Last year, the Republican-controlled Congress passed a significant tax reform measure that not only decreased taxes for millions of individuals and corporations, but increased both personal and corporate deductions for items like medical expenses and depreciation. Less taxes sound great, but the cuts came at the expense of our federal deficit, which is expected to balloon over the next few years unless other measures are taken.

What will happen? Will these tax cuts be permanent? This is why 62 percent of small businesses listed taxes as one of their top three issues heading into the elections, according to a recent Paychex study.

For Republicans, the tax cuts don't go far enough. After defending their control of Congress, many aim to make most of the changes permanent and believe that such cuts will offset deficits as a result of a faster growing, robust economy. Democrats argue that the cuts, along with other proposed expenditures, could send our deficits even higher. We could see them try to dial back some of the tax cuts and limit the President's spending plans. With a Republican-controlled executive branch and potential Democratic-controlled Congress, look for intense budget battles that impact spending, taxes, and government operations over the next two years.

Healthcare

Also in Paychex’s survey, 48 percent of the businesses owners who responded listed healthcare as one of their top three issues, which is no surprise: healthcare costs remain one of the biggest line items on a company’s income statement, despite a recent leveling of costs. Congress failed twice to repeal the Affordable Care Act in 2017.

So, what now? The current administration has issued new orders allowing businesses to form buying groups called "associations," which would allow them to exclude certain essential benefits and purchase insurance at a lower price. As part of its tax reform package last year, the administration also signed into law a repeal of the individual mandate, one of the Affordable Care Act’s key components.

If Congress flips, many who are opposed to the President may initiate legislation or at least investigations into the legality of association and skinny plans, which could make it more difficult for employers to offer them. Then again, perhaps a bi-partisan solution can be reached. Regardless, healthcare funding will continue to be a significant battle, and more changes would likely be on the table with a new party in control of Congress.

Trade

As of this writing, the U.S. has agreed on a trade deal with Mexico and Canada (although each country's legislatures will need to ratify), struck a new trade deal with South Korea, and is still in trade negotiations with the European Union. The big issue today is with China, where the U.S. has levied tariffs on more than $250 billion of Chinese goods and the Chinese have responded with tariffs on more than $160 billion of U.S. products. Many large corporations have seen increased costs already and have been threatening cutbacks, layoffs, and price increases. Small and medium-sized firms have felt the impact.

With a new Congress in session, all of the President's deals so far — and any potential deal with China's President Xi, who is scheduled to meet with the President in November — are still up in the air. Will a Democratic-controlled Congress face "losing" to a Trump trade deal? Or, will continued disagreement cause delays or a break in negotiation? These are potential issues that might become much clearer after the November results.

The markets

Finally, there are the financial markets. They’ve experienced significant gains since President Trump took office, but have also suffered wild swings over the past few months. How could the financial markets react to a Democratic-controlled Congress? What will the reaction be if the Republicans retain their majorities?

Truthfully, no one knows. But one thing's for sure: any big drop in value has the potential to wipe out the value of companies, investors, and customers in a matter of moments. Uncertainty and instability with one's life savings, or a company's stock portfolio, puts a damper on spending and investment plans, which ultimately reverberates into less sales for businesses, both big and small.

All in all, the outcome of the Nov. 6 elections will be important for the business community. If voters decide to leave Congress as-is, you can expect more pro-business policies along with risky deficits and de-regulation. If Congress turns to the Democrats or becomes a stalemate, many of the President's policies could become stuck in the mud and, depending on your industry, that could be a good thing too. Regardless of results, the regulatory landscape continues to be challenging for business owners to keep up with — and the outcome of the midterm elections could very well add to the complexity. It’s important for business owners to either have the regulatory expertise themselves or work alongside a trusted advisor(s) who does in order to brace for any significant regulatory changes that may be on the horizon.

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Gene Marks is a business owner, small business expert, author, speaker, CPA, and columnist for The Washington Post.

This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.
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