It’s Entitlements, Stupid

Every business owner we spoke to sounded a common refrain. Any attempt to address the deficit can’t be considered serious unless it’s looking at three sectors that comprise a large chunk of the budget: Medicare, Medicaid and Social Security.

“It looks to me that Obama isn’t serious about cutting the deficit,” says Dave Young, president of investment advisory firm Paragon Wealth Management. “There’s a lot of noise about discretionary spending, but the entitlements are the heart of the budget.”

Steimle agrees.

“Somebody has to look at the entitlement programs,” he says. “Any talk about getting things in order that doesn’t include talking about those things isn’t a serious conversation.”

By that metric the debate currently raging in Washington is fundamentally unserious. Most of Obama’s budget cuts focused on discretionary spending, targeting programs that constitute a relatively small percentage of the federal budget. Meanwhile, the main debate raging in Congress right now is whether to cut the $75 million in annual aid to Planned Parenthood – an amount that makes up about 1/500 of 1% of the total budget. Congress, it seems, is more comfortable talking about abortion than it is about Medicare and Social Security.

This willful myopia seems at least partly attributable to the fundamental difference between running a business and running a government. While the business owner is solely concerned with keeping his or her company above water and ensuring its long-term financial health, politicians are often more concerned with what is politically expedient. And chipping away at the entitlement programs that Americans hold dear is the furthest thing from that.

“It’s just a matter of political will,” says Young. “No one wants to get rocks thrown at them for being the bad guy.”

Who Should Sacrifice

While the president and congress have steadfastly shied away from making tough decisions, small business owners don’t have that luxury. In the past few years, many were forced to lay off employees to trim costs when business got sparse. In a small business environment with only a handful of employees, that can be a particularly difficult decision.

Young recalls needing to lay off a well-liked employee a few years ago as a result of revenue shortfalls. When several employees complained, he offered them a compromise: If everyone took a 20% pay cut, he would be able to keep the employee on. None of them took him up on the offer.

It was a tough situation, and one that required tough love. “You don’t have the option of running a deficit,” he says.

The business owners we spoke to say that budget situation requires this same kind of tough love, with many pointing to raising the retirement age as a good starting point.

“Social Security was set up 60 to 70 years ago, when no one lived to be 65; now the life expectancy is pushing 80,” says Bucci. He suggests that the retirement age should not be a fixed number, but should rather be tied to the average life expectancy and rise accordingly.

While Steimle advocates the abolishment of Social Security as we know it, he concedes that raising the retirement age works as a more politically expedient solution. “When the program was started, most people were dying shortly after they reached retirement,” he says. “I think we should look at pushing it back to 70 to 75.” He also proposes that Social Security shouldn’t automatically begin when a worker retires, but be timed to kick in when many retirees begin to run into financial difficulty after their own savings dry up.

Cutting Benefits

While most of the business owners said they didn’t have suggestions as to how Obama should handle cuts to health care programs like Medicare and Medicaid, they did have gripes with how the president handled the recent health care reform.

“It was supposed to be about costs, but it wound up being about extending coverage to all Americans,” says Young, complaining that critical cost-saving issues like tort reform, doctor compensation models and hospital cost structures went unaddressed.

Of course, business owners had another reason to hate health care reform: It drastically increased the cost of insuring their employees.

“We pay our employees’ health care, and the fees doubled,” says Rob Holmes, CEO of IPCyberCrime.com. “I had to release a couple of people, and health care was one of the factors.”

If there was one area where business owners came up empty, it was taxation, with many demurring when asked whether the government should raise taxes to cover the revenue shortfall. Indeed, most opined that Obama’s quest to raise tax rates on Americans making more than $250,000 a year constituted a disincentive to business creation. Business owners had plenty of ideas about cutting costs, but by and large they showed little interest in seeing the government raise revenue through higher taxes.