What a Republican Congress Means to Your Business

Michael Evans
Wed, 05 Nov 2014 00:00:00 +0000

Just a few hours after the midterm election results were in and the Republican Party took control of both the House of Representatives and the Senate for the first time since 2006, the stock market, which some predicted to skyrocket after a Republican victory, was up less than a half of a percent.

One school of thought was that the Republican victory was already factored into the stock market, and this may well be the case as there has been a significant market recovery over the last two weeks from the October drop.

The other school of thought is that despite the significant differences between the parties on virtually every issue, when it came to the economic recovery and jobs growth, the policies of the parties were significantly aligned. Case in point:

Interest Rates. Low interest rates are good for business. Borrowing at a low cost stimulates consumer spending, corporate purchases, capital expenditures, and economic production. Credit availability is significant today and banks are bemoaning that they can’t lend money to businesses fast enough. Generally a Republican issue, low interest rates were driven under a Democratic administration.

Tax Incentives. The old mantra “The Democrats want to raise taxes for business and the Republicans want to lower taxes” is no longer true. One of the largest incentives, the first-year deduction for capital purchases (IRC Section 179), has been expanded under a Democratic administration. Recently, Senate Majority Leader Democrat Harry Reid proposed extending the higher Section 179 deduction, along with extending 54 other deductions that expired at the end of last year. Conversely, Republican Sen. Orrin Hatch told Bloomberg News that each tax break must be reviewed on a case-by-case basis.

Red Tape and Regulations. Business, particularly small business, complain about the mounting government regulations, red tape, and barriers to doing business. Few can dispute that mounting regulations have made it more difficult to grow a business. But effective January 3, 2013, The Small Business Act was created, in part, to help small businesses compete in our economic market.

So despite the gridlock in Congress, policies supported by both parties were implemented to support the growth of business. But what’s ahead and how can you position your company for a Republican legislative branch and a Democratic executive office?

With control of the Senate and the House of Representatives, the Republicans can hold hearings and encourage bipartisan dialogue about key issues facing the U.S. economy and world issues. The president has veto power but in the long run, there should be little impact on corporate earnings and the economy as a result of the midterm elections.

Key Republican Small Business Legislation

First on the agenda will be legislation ensuring the continued recovery of the U.S. economy and increased job growth. Despite the addition of 230,000 new jobs last month and the reduction of unemployment from 10 percent in 2009 to 5.9 percent today, the Republicans will promote legislation to drive unemployment below 5 percent. Key bills will include:

Jobs for America Act. Designed to exempt small business from costs of the Affordable Care Act (ACA), this bill redefines "full-time employee," for purposes of the mandate requiring employers to provide healthcare coverage for their employees, as an employee who is employed on average at least 40 hours of service a week. (Currently, the threshold is at least 30 hours of service a week.)

Hire More Heroes Act. Another ACA amendment, this act permits an employer, for purposes of determining whether said employer is an applicable large employer and thus required by ACA to provide healthcare coverage to employees, to exclude employees who have coverage under a healthcare program administered by the Department of Defense (DOD) or the Department of Veterans Affairs (VA).

American Research and Competitiveness. American Research and Competitiveness Act of 2014. Establishes a 20 percent tax rate for research credit and makes the credit permanent.

America's Small Business Tax Relief. Allows first year expensing for depreciable business property, to make permanent: (1) the increased $500,000 expensing allowance; (2) the increased $2M threshold amount for such property over which the amount of the expensing allowance is reduced; (3) expensing of computer software; and (4) rules for the expensing of qualified real property (i.e., leasehold improvement, restaurant, and retail improvement property). Makes air conditioning and heating units eligible for the expensing allowance.

S Corporation Permanent Tax Relief. Makes permanent several tax reduction changes available to S corporations, a predominant form of business entity used by smaller companies.

Bonus Depreciation Modified and Made Permanent. Makes permanent the additional 50 percent depreciation allowance.

Regulatory Flexibility Improvements Act. Requires initial and final regulatory flexibility analyses to describe alternatives to a proposed government rule to minimize any adverse significant economic impact or maximize the beneficial significant economic impact on small entities.

Although many of these bills will have an impact on creating jobs and reducing business costs and red tape, none are likely to create a dramatic increase in new jobs or economic growth. Most are likely to be supported by the president and Congress, both Republicans and Democrats.

For small and growing businesses, the job creation engines of the U.S. economy, more relief is in sight but don’t expect dramatic changes from our new Congress.