To get a sense of what the Democrats' midterm victory means for small business, SmallBiz writer Amy Barrett spoke with seven incoming members of Congress with small-business experience, as well as Nydia Velázquez, a longtime ranking member of the House Small Business Committee who was recently appointed to be that committee's chairwoman. Edited excerpts of their conversations follow.
Nydia Velázquez (D-N.Y.): Incoming chair of the House Small Business Committee and longtime ranking member of that committee.
What is the outlook for addressing small-business issues in the next Congress? If there is any committee in the Congress that should work in the bipartisan way, it is this one. Small-business issues are nonpartisan. I hope that we can work in a bipartisan way to be able to deal with issues that are important to small business.
What will your priorities be? We need to improve the economic environment for small business. We need to address issues that will contain rising health-care and energy costs and that will reduce the regulatory and tax burden for small business. I hear concerns all the time about access to affordable capital. And we want an open and fair federal [contracting] marketplace. We also need to ensure that Small Business Administration programs are funded and operational.
What is the outlook for health-care reform? We have a problem. It is a big issue for small business. The cost of health care is going up every year—it went up by nearly 80% since 2000. I can tell you that I will work in a bipartisan manner to develop a solution that will provide small firms with affordable health care for their employees. If we want to address the issue of health-care costs and the lack of coverage [in this country], 60% of the noncovered are small-business employees and their families. To tackle the issue of noncoverage we need to tackle this for small business. And we need to keep an open mind. I will plan to hold a series of hearings on ways to bring down costs for small businesses. This is a crisis, and this is a priority for Democrats.
I supported association health plans. But if we are serious about attacking the cost issue, it may require a combination of new and old ideas that will ultimately give small businesses more options.
A hike in the federal minimum wage is expected to go through. Do you support that? It is important for us to pass [a hike] in the minimum wage. I can tell you that most small businesses actually benefit from a minimum-wage increase. It has been demonstrated by the Economic Policy Institute, which looked at states that have already implemented a higher wage. Economic growth is twice as high in states with higher minimum wages. I think it is time to get the minimum-wage increase passed.
What is the outlook for immigration reform? The result of the election speaks volumes about this issue. We have to do the right thing. We know it is a broken system that is quite ineffective. For the sake of our own economy, we need to come up with something that is really comprehensive—particularly for small businesses in our country. Any reform has to be comprehensive and balanced.
What will your approach be to dealing with the Small Business Administration? (See BusinessWeek.com, 6/21/06, "Mr. Small Biz Goes to Washington.")
For the last five years the [SBA] budget has been cut by 50%. This is having quite an impact. If you look at the inability of the SBA to respond to the Katrina crisis, I don't have to say anything more. The agency lacked resources and staff. It is a combination of budget and oversight. The SBA has been suffering from the budget cuts. But the agency and the programs have fallen victim to mismanagement. I want to get this agency to return to the economic powerhouse that it once was.
What about tax issues as they impact small business? We need to provide tax simplification and we need to target tax relief for small businesses. Take section 179, the write-off of asset purchases. That was sunsetted in the 2003 tax package. It should be made permanent. We need to revise depreciation schedules and allow for deductibility of health-care costs for the self-employed.
What else will be on your agenda? The federal contracting issue is important. We spent $385 billion in 2005 and we have to make sure that small businesses have a fair share, or at least that there is a level playing field for small businesses to do business with the federal government. Three or four months ago I released a report that showed that $12 billion that was supposed to go to small businesses was awarded to large corporations. And those large corporations were miscoded. So we need oversight and accountability.
Senator-elect Bob Corker (R-Tenn.): Started his own construction company. In 1999, he purchased two real estate companies in Chattanooga. Sold most of his properties early in 2006.
How do you think your experience as a small-business person positions you to be an effective legislator in Washington? I don't need to read a white paper to understand what business deals with on a daily basis. Whether it is health care, taxes, the risk of being in business, labor issues, or workers' compensation issues, I have an understanding that one gains through being in business and starting with a small amount of capital. It impacts not only how you view the issues of small business, but it very much impacts how you go about the public arena in general. Things like accountability, benchmarks, the bottom line, and making sure you adhere to one. Being in business generates a discipline that is helpful in the public arena.
What small-business issues need to be addressed in this Congress? I think there are a number of things we need to do. We have to create the ability for small businesses to band together through association health plans. We need to make sure for individuals that health care is deductible just as it is for businesses. And technology needs to be utilized in the administration of health care. It is not used near enough to lower the cost of administration in health care. We need to figure out a way of using some national platform to get health-care entities able to communicate with each other, to bill easily. We need to promote health savings accounts.
And we need to have tort reform. There is so much defensive medicine that is practiced. A lot of things are done just to keep from being sued. Malpractice insurance is very high for certain specialties—in our state in particular for ob-gyns and for neurosurgeons. We have to figure out a way that Americans are not paying more for prescription drugs than countries like Canada.
You mentioned the deductibility of health insurance for the self-employed. How optimistic are you that that will be addressed? That would cost the treasury some amount of revenue. On the other hand, it will lessen the burden in some communities where people don't have coverage and get into catastrophic situations. I think it is something that can happen.
What about immigration reform? I think there has to be immigration reform. There are several things that need to happen. We need to secure the border. Not just because of illegal immigration, but because of concerns about terrorism. No. 2, we need to allow people to work here but only if it is legal. I know we have a lot of bureaucratic constraints. We've got to figure out a way to make that more streamlined. I do believe that anybody who is here illegally should return home to their country and come back through legal channels only. And we need a way in America for employers to more easily know if someone is here legally. There is a lot of document fraud here. But if employers are taking advantage of that [to hire workers who are not here legally], they should be punished.
On tort reform, many people think it is a long shot that we will see something passed. I would acknowledge that with the election [results giving control of Congress to Democrats], it will be more difficult.
What other issues do you think should be taken up on the Hill? I think we need to extend the research-and-development tax credit. That is what makes our country innovative. Other countries around the world are embracing research-and-development credits because it sparks innovation. This is important [to stimulate] the entrepreneurialism that exists in the U.S.
John Hall (D-N.Y.): The musician who founded the group Orleans also created an independent record label to put out his music and that of other artists.
Why do you think your experience positions you to be an effective representative in Washington? I know what it is like to struggle as a small business in a field that is dominated by multinational conglomerates. I know what it is to hire people as independent contractors or employees who need health care and the burden that places on the business. That is one reason I am in favor of universal health care.
How likely do you think it is we'll see health-care reform from this Congress? I think something is going to happen. I think this Congress is very heavily motivated to do something about health care to cover the 40-some million who are not covered. We have two kinds of socialized programs already: Medicare and the VA. They both function more or less well. They cover millions of Americans and they have been accepted by people as a good use of government. One of the plans out there is for Medicare for all, allowing those who can't get coverage elsewhere to buy into the Medicare system.
Even if that approach doesn't make it, it sounds like you think there's a good chance we'll see passage of some reform? I think the chances are very good in this Congress that there will be a bill passed that covers the uninsured. I think something will definitely pass the House and probably the Senate. Everywhere I went on the campaign trail I heard horror stories about health care.
What about a minimum-wage hike? Small businesses are being hurt by other factors that are more damaging than minimum wage would be. The cost of fuel, for instance. And the tendency for loans and subsidies and contracts that are supposed to go to small business really ending up with big companies like Northrop Grumman (NOC ).
There is also some expectation we might see immigration reform. What do you think that should entail? We need to tie a guest-worker program with increased border and port security. You can't set up a guest-worker program and have another 15 million undocumented workers coming into the country. I think we need to control our borders and ports.
Small companies worry that sort of legislation will come with stiffer penalties for hiring illegal immigrants, in effect forcing them into the role of law enforcement.
All businesses are required not to use child labor. They check the age of applicants. Checking ID is not an unheard of thing. I think that is a red herring. I think there are significant numbers of small businesses and individuals who just like to get the cheaper labor and they are willing to look the other way to get it. That is not fair to the American worker and that is not fair to those who play by the law.
What else would you like to see addressed in the next Congress? I would like to see an emphasis on small businesses that do renewable energy and conservation. Private investment in wind power is growing 20% to 25% a year. I think [we should create] subsidies, tax breaks, and [support] research-and-development dollars being channeled in that direction. The same money currently is going to the oil companies to drill on public lands and pay no royalties. Over the last couple years we gave windfall tax breaks to big companies that were already enjoying record profits. That is the opposite of supporting small business. We should be helping small business rather than the largest and most profitable businesses, and supporting the kinds of energy that are the least polluting.
Charlie Wilson (D-Ohio): Has run his family's 108-year-old furniture and funeral-home business, as well as a family real estate operation.
Why do you think your experience as a business owner is an asset as you head to Washington? We identify problems, have to make adjustments to correct them, and always [have to] be aware of the bottom line. We are able to meet payroll every week, pay benefits every month, hold onto our employees, and please our customers every day. I call that creative leadership. And that is something that has been lacking [in Washington]. We know that as small businessmen we can't be reckless. I'm concerned about the national debt that is being created. I don't know if [politicians] are connecting the dots here with the long-term ramifications.
What do you think of plans to hike the minimum wage? I'm in favor of a minimum-wage increase. The key is to not have people at minimum wage. As we raise the minimum wage some people argue it will cost jobs. And that has not been the case in states around us [that raised the minimum wage] and it didn't cost jobs [in those states]. It is not fair to have a minimum wage that hasn't been increased in 10 years.
What other issues do you think need to be addressed? On the estate tax, I would be in favor of eliminating it. It's punitive. It doesn't make sense. All the years that a businessman is earning and paying tax on the money he earns—and at the end of his life, everything he has is subject to being lost due to the death tax. Some people lose their business and that is very unfair.
We also have to look at the trade policies we have in this country. NAFTA and CAFTA—they really haven't worked. So is it fair to continue to have our trade deficit going up in the hundreds of billions of dollars? That is going to come home to roost. And then there's the deficit—the money we are using to pay for that. There is no plan for what is going to happen. I'm concerned the next generation is going to be stuck with one hell of a tab.
What are your views on health care? We need to look at real health-care reform. [My family's company] pays $4,000 per month per employee for health insurance. We need to look at how we can band together some groups to have larger buying power.
David Davis (R-Tenn.): Built and sold a medical-equipment business. Now owns and is president of a health-care company specializing in hyperbaric oxygen therapy.
Tell us a little bit about your business. I sold advanced home care—oxygen and medical equipment. We had patients in five states. When I sold [the company] about 12 years ago we had almost 30 employees. Then I started Shared Health Services, a wound care and hyperbaric oxygen therapy business. We have contracts with hospitals in the eastern U.S. We bring the chambers, and patients are put in them for wound healing. Right now we have about 20 employees. We are looking now at a possible merger or sale.
How do you think that experience will impact your work as a legislator? I understand that the government doesn't really create jobs. It is people who are entrepreneurs and who are willing to risk assets. We've put our home up for collateral in the past. We were willing to take the risk. So we need to keep regulations as low as possible and taxes as low as possible to help entrepreneurs do what they need to. Government needs to free entrepreneurs to go out and create jobs. And we need to do something about making health care more affordable.
What do you think we should do to address that? I campaigned on allowing small businesses to band together to buy quality health care at a reasonable price. I think association health plans are one of many [possible] ideas. I don't think legislating and mandating that small companies [provide coverage] makes sense. It was discussed in my state. But I think there is a sense that health care is one of the issues that we have to do something about. The Democrats are in control for the next two years. It is up to them now to lead.
What about tort reform? It was talked about a lot when Republicans were in control. But with the Democratic party having a closer alliance with trial lawyers, I don't see much happening on tort reform.
What about a hike in the national minimum wage? That is a strong likelihood. The lowest paid person in my business [is paid] double what the national minimum wage is now. I'm afraid if you raise it too much it will cause inflation. I think we'll see a hike in the minimum wage. The question is what the effect will be.
What committees would you like to serve on? I will ask to be on the Small Business Committee. I think having lived it makes a big difference.
Vernon Buchanan (R-Fla.): Started a printing company and later became an auto dealer.
Why did you run for office? I've been in business for 30 years and we have done well financially. I think the country is at a crossroads on a lot of issues, and I want to work on a bipartisan basis to move forward the small-business agenda in general. I believe to compete with China and India and the world in the long term, we have to encourage entrepreneurship. Small business creates most of the jobs in this country. And unless you have been in business and you have started and run a business, you have no idea what it is about.
What are your views on health care? We have to look for other opportunities to make it more available or more affordable. You have to look at ways where small businesses can pool their resources. We have to continue to look at any alternatives that are out there. It is a crisis for small business. We have to be thinking outside the box with some incentives.
What have you seen in your auto dealership business with health care? Our cost has gone up 20% to 25% every year for my business. Inflation runs at 4% and 5% and you have something rising 20%—that is tough. Even for those [employers] who offer it, it has to be pretty diluted.
What about tort reform? Florida [ranked 42nd] in the country for frivolous lawsuits. It is not healthy for small business. There are a lot of great lawyers but there are also some predatory practices. We have to find a way to rein that in. There are a lot of legitimate claims, too, but there are also a lot of frivolous lawsuits.
What other issues do you think need to be addressed? The bureaucracy and regulation of small business. Any way we can make things more efficient would be helpful. Small business is my passion. We want to try to do everything we can to foster a positive environment for small business.
Gabrielle Giffords (D-Ariz.): Ran her family's tire company in the late 1990s; in 2000 formed a Tucson commercial property management firm.
You ran your family's business for a period. How did that come about? I was working in New York City on an economic development program looking at the relationship between job training and available jobs in the city. In 1996 I got a call from my dad asking me to take over the family business. It was started by my grandfather in the '40s as a gas station. My father was having serious health issues and he wanted to retire. I gave my notice and put on my boots and came back to Tucson.
How did you learn the business? If I was going to learn this company, I was going to have to start at the bottom. I started out in the tire shop changing tires. And then went into sales. Ended up taking over as president and CEO faster than would be advised. The business, which had 12 locations, had been a seat-of-your-pants operation for years. It didn't have [standard] policies and procedures in place. So I set out to build a management team to put those systems in place. I was able to turn the business around—it had been struggling. We sold it to Goodyear (GT ) around 2000.
We kept the real estate and sold the stores. I was serving in the state legislature, and I started a commercial property management company called Giffords Capital Management. It's a one-person operation and it manages the real estate from the family business and some other real estate as well.
It is incredibly beneficial to have small-business experience. I know what it is like to get to the end of the week and struggle to make payroll. I understand the difficulties of the regulations put on small businesses. And small businesses are not given an equal seat at the table as large national and multinational firms.
What were the lessons from running that business? As a small-business owner one of our largest costs was health care. We provided very good benefits. We saw skyrocketing costs for health insurance year after year, and that was incredibly disturbing. I am very focused on making health care affordable for every American, whether you work for a large business, a small business, or you are self-employed.
What do you think the solution is? I campaigned not on [association health plans] specifically, but on pooling. If companies can join an organization that would have a pooled risk, that would be helpful.
When small businesses and the largest companies in our country are struggling to afford health care, and with so many people having no coverage, our economy cannot continue to grow in a competitive nature with other countries if we don't address this issue.
I am optimistic that in 2008 it will be a prominent issue in the presidential election. Over the next two years I'm optimistic that we [will] take some steps and expand access to children and expectant mothers. Now that the Democrats have taken the House and Senate there is a big shift in power. It has not been a priority of President Bush to ensure that every American has affordable health insurance. I don't see this as a partisan issue.
What are your views on immigration reform? I campaigned on comprehensive immigration reform. We need high-tech border security. And the second [component of reform should be] penalties for employers who knowingly hire people who are not here legally. In our business, we required a valid driver's license to hire someone. Having a fast and responsible employee verification system is important. Right now it is cumbersome and difficult for small businesses. And finally, [reform should include] a guest-worker program. Farmers and ranchers struggle to find people to bring in crops, who know how to milk a cow, and want to do the difficult labor that so many Americans are not interested in right now. We need to pull people out of the shadows and get them documented. A guest-worker program is vital to the success of immigration reform.
What else would you like to see on the table in Washington? I think revising the entire tax code should be a priority. It is incredibly confusing. It is not straightforward. Special interests can hire lobbyists and advocate for their specific area. We have a lopsided system.
John Yarmuth (D-Ky.): Founded Louisville Today magazine in 1976. In 1990 he founded the weekly alternative publication LEO.
Why did you decide to run? I was mad as hell and wasn't gonna take it anymore. I was totally frustrated with the direction of the country. And I looked at the political environment here and it looked like no established person was going to challenge [incumbent Republican Anne] Northup and I jumped into it myself.
How does your background running an independent news weekly help you as you head to Washington? I do understand a little bit about raising capital, and I do understand about marketing and PR and selling ideas. Certainly I have an understanding of the burden of government requirements. I'm somewhat sympathetic to those issues. But on the other hand, I understand and appreciate the need for government to be somewhat of a safety net when the marketplace doesn't function properly.
What is your position on the minimum wage? I campaigned for a hike in the federal minimum wage. I think it is a done deal. I think it should be raised.
Health care is a huge issue for small business. What is your view on what needs to be done? I campaigned for moving toward universal health care. One of the reasons I believe it is so important is that I think it makes business more competitive—and small business in particular. I have seen so many people who have had to take jobs with larger companies that they might not have wanted to take because of the benefits. That works to the disadvantage of small business particularly.
But by most accounts, the odds of passing universal health care in the next Congress are slim. Universal health care will not happen in the next Congress. I would think it is an eight- to 10-year vision. But I certainly would love for the Congress to consider extending Medicare to everybody under 18 or 21. And clearly the interim measures—for example, letting small businesses pool together—could be done much more quickly and is something I would be supportive of.
What is your view on the likelihood we get immigration reform in this next Congress? I had calls from people [during the campaign] who do employ legally and do see undocumented immigrants competing with them and working for $20 a day or something like that. People who are trying to do the right thing are hurt. But I am not so optimistic it has a good chance of passing. It seems like an almost intractable political problem. I would like to see some progress made on it. But I'm not optimistic it will happen.
What other issues do you think need to be addressed? The deductibility of health care for the self-employed. There is some inequity there. I don't know exactly how to cure it. But it is something that needs to be looked at.
Tim Mahoney (D-Fla.): Co-founded a 200-employee investment banking and brokerage company. Also co-founded the Center for Innovative Entrepreneurship, a think tank that measures the impact of entrepreneurship on the economy.
What issues do you expect will be addressed in the next Congress that could impact small-business owners? We will have [the] Sarbanes-Oxley [Act] review and renewal this year. There absolutely has to be [some changes made].
My small company went public because we needed capital to grow. And we are going to have to comply with Sarbanes-Oxley this year, and that will cost a minimum of $250,000 this year. The rules and regulations that existed were sufficient as long as there was aggressive enforcement. Under Sarbanes-Oxley, as the chairman of a company, I'm paying a ton of money to have an audit firm keep track of tax-law changes every year that I never could. And now I have to take responsibility [for the work] of my independent auditors. It's silly.
The danger is in the Fortune 2000 [companies]. The problem in there is that the size and complexity of those companies can create [the potential for] large-scale abuses. And the system and policies and processes [of Sarbanes-Oxley] are rational and appropriate for companies with those resources. I don't think Sarbanes-Oxley reaching down to my small company makes a lot of sense.
You run something called the Center for Innovative Entrepreneurship, a think tank that examines the impact of entrepreneurship on the economy. What are your thoughts about the current environment for startups? The best period in innovation in the history of business was in the late 1990s. We had a huge number of startup companies, patents per 1,000 people were at an all-time high, and the economy was doing very well. The bad news was a lot of bad companies were being taken public. We need to get innovation levels up without taking lousy companies public.
Right now people pay income tax on a gain from IPOs. If we reward those companies and the investors in those companies by giving them long-term capital gains treatment, you'd see good companies going public. When the NASDAQ market went from [its peak of 5,048] to [a low of 1,114] and never [fully] rebounded, trillions of dollars in venture capital went out of the market. For venture capitalists to get the returns they need, they have to have a healthy initial public offering market.
[Right now] there is no IPO market and entrepreneurs are struggling to figure out how to get capital. This administration's focus has been on the oil companies and the pharmaceutical companies. We are not generating the next generation of companies.
What are your thoughts on health care? Health care is broken in this country. You know it is broken when you have the automakers looking for a single-payer system. We are in a digital economy. And our competitors [in countries like] Japan, India, and China have figured it out. You can build a car cheaper in Canada than the U.S. because of health-care costs.
What about the notion of using association health plans to help small businesses gain access to affordable health care? If you have AHPs you can help [in slowing the growth] of health-care costs. But when costs are going up 20% to 30% a year, what are you negotiating? Last year my health-care provider increased our premiums 36%. What is terrible about it is that something in 2000 that I provided at my cost is being shared with my employees and the value of what they get is half what it was six years ago. It is hurting our ability to compete. It is driving our costs up. These costs are also incentives to do more outsourcing and move jobs overseas.
The big problem is we have 35 million people [who] go to work but don't have health insurance. That is immoral. That tells you we have a bad situation. We have a crisis. We need to sit down and recognize it is fatally flawed.
But how do you start providing coverage for all those people without breaking the bank? We are paying for this [now] through the [use of hospital] emergency rooms. There needs to be access but there should also be opportunity for people with the means and ability to buy more [coverage]. In the U.S. if you can afford insurance, the quality of service is great. If you can't afford to pay you aren't getting very good care. We should look for [solutions from the] private sector first.
By Amy Barrett