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The Federal Budget Debate: To Shut Down Or Not To Shut Down

Chad Moutray

NOTE: This new section of the Policy Dialogue on Entrepreneurship will focus on legislative activities on Capitol Hill, focusing particularly on how these proposed actions will impact small businesses and entrepreneurs. This year, much of the focus will center on budgetary debates, as seen in the paragraphs above, but it will also hopefully highlight legislative fixes that will positively impact new venture creation and innovation. Given the importance of entrepreneurship and net job creation in our current economic environment, we should be able to have a lively discussion. If you have ideas for possible topics, do not hesitate to let me know.

When you talk to anyone in government this week, one word is on everyone’s mind: “shutdown.” The federal government is already setting up contingency plans on what it will do if the Congress cannot agree on a new continuing resolution by March 4. It does appear, however, that a shutdown will not happen – at least for now. Last week, House Republicans proposed a two-week extension of the continuing resolution (CR) that also called for $4 billion in FY 2011 spending cuts. While Senate Democrats initially balked at the idea, this extension, including the cuts, now looks likely. If the CR passes this week, all eyes will shift to March 18 (the new CR deadline) and/or sometime after April 5 (when we would approach the federal debt ceiling of $14.3 trillion). Needless to say, the budget battles will wage on throughout much of this year, and it will be interesting to see if pragmatism or political ideology wins out in this debate.

In the midst of the shutdown drama, though, there also important discussions on spending as it relates to small businesses, entrepreneurship, and innovation. With the federal budget deficit projected to be at least $1.5 trillion in FY 2011, both parties are talking about budget cuts, with Republicans proposing greater austerity than the White House and Democrats would prefer. On February 14, President Obama released his FY 2012 budget, including cuts in a number of areas. There are some underlying themes:

  • Cuts in Discretionary Spending: Decreases appropriations to the Commerce Department, ($5.1 billion, including savings from the completion of the 2010 Census) and the U.S. Small Business Administration, among other places.
  • Promotion of Science and Technology: Increases funding for the Energy Department, National Institutes of Health, National Institute for Standards and Technology (NIST), and the National Science Foundation.
  • Increasing America’s Competitiveness: Continues to promote exports, regional economic development, broadband implementation, worker retraining, and STEM (science, technology, engineering, and math) education.

As laudable as many of the programs in the President’s budget might be (particularly those which focus on innovation, new markets, and overall competitiveness), policymakers are eager to be seen as doing something tangible on the fiscal side. This will restrict even good policies from getting enacted and implemented, and quite possibly, some popular programs might get the axe moving forward. President Obama’s budget freezes non-discretionary federal spending for five years. For many budget hawks, though, that is not aggressive enough, especially in the wake of the recommendations made by the Bowles-Simpson commission. There are calls, for instance, (mostly by Republicans) for the budget to return to FY 2008 levels, erasing the massive run-up in spending of the last couple years. Yet, there is also fear that such drastic measures could tip the economy back into a recession, or more to the point, that the budget axe might strip the nation of effective programs in the name of cost-cutting.

We will soon find out whether or not there really are any “sacred cows.” Reducing government expenditures is popular in the abstract, but when it comes to cutting a program that I like and benefit from, well, that is often a different story.

From the entrepreneurial perspective, one thing is abundantly clear. Politicians of both parties are embracing the entrepreneur as a solution to our economic recovery and for generating new employment. Thus, even in tight fiscal times, programs which can help to grow the economy – a more positive way of reducing the budget deficit, for sure – have the potential of prospering. The Startup America Partnership is busy exploring new policy avenues that will help facilitate new ventures, while at the same time listening to business owners about obstacles that stand in their way for success. The key will now be how policymakers balance that desire to create an environment for businesses to flourish with the pressing need to reduce fiscal expenditures. Stay tuned.

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