Huffpost Politics
Zach Carter Headshot
Ryan Grim Headshot

Taking Mom And Pop To The Cleaners: How The Small Business Lobby Hurts Small Business

Posted: Updated:
SMALL BUSINESS

Throughout Wednesday's House floor debate over the repeal of President Barack Obama's signature health care overhaul, Republicans frequently claimed that the 2010 law will cost the U.S. economy 1.6 million jobs if it isn't rolled back. They were citing a statistic from an organization that -- on the surface -- is as unimpeachable a source in Washington as can be found: The National Federation of Independent Businesses, a lobbying heavyweight which dubs itself "The Voice of Small Business."

Yet for the past two years, the NFIB has been less an advocate for small businesses than an arm of the Republican Party. When the interests of the GOP and the needs of small firms have collided, the NFIB has repeatedly sided with Republicans, jeopardizing billions of dollars in credit, tax benefits and other federal subsidies that are critical to the small enterprises that form the backbone of the U.S. economy. Key legislative priorities for small businesses were delayed, diluted or abandoned -- including a major small-business bill -- while the NFIB spent its resources on legislative battles with only tangential connections to small firms, battling climate-change legislation, pushing to extend the Bush tax cuts for the wealthy or opposing a stimulus offering tens of billions in giveaways for, yes, small business.

The U.S. Chamber of Commerce, NFIB's bigger brother of sorts, has received greater attention for its outright political warfare against Democrats. The NFIB has maintained a lower national profile, and is still routinely referred to in the media as "the small business lobby." But inside the Beltway, the NFIB's raw partisanship is increasingly isolating it from key policy circles, as lobby groups such as the National Small Business Association, the Main Street Alliance and others expand their influence among entrepreneurs and mom-and-pop enterprises.

By yoking itself to the GOP, the NFIB is employing a strategy routinely embraced by the Chamber on one side of the aisle and labor unions on the other. The strategy makes sense for labor and major corporations in that their competing interests neatly fit atop the platforms of their respective parties. It makes less sense for U.S. small businesses, whose interests are often served by either party.

Democrats who deal with the NFIB regularly, even those on the business-friendly end of the spectrum, find it extremely difficult to get any traction with the group. In an interview, Senate Small Business Committee Chair Mary Landrieu (D-La.) fully extended her arm to the right to demonstrate just where on the spectrum the NFIB positions itself. "The small-business lobby is a broad coalition that ranges, I guess, from the right, by the NFIB, the Chamber of Commerce coming -- still right, but closer to the center -- and then you have more of your progressive and left-leaning small business groups," she said.

"Sometimes the NFIB cuts off their nose to spite their face," Landrieu said of the lobby's decision to obstruct the small-business bill to win points with Republicans.

On Capitol Hill, the NFIB has been associated with the GOP since the Reagan era, and enjoyed a particularly close relationship with the party during the presidency of George W. Bush. But in 2006, the organization made a significant leadership change, bringing on Todd Stottlemyer as president and CEO just as Democrats appeared on the cusp of a major victory in that November's midterm elections.

When Stottlemyer arrived, he found an organization that had drifted a long way from its small-business base. The NFIB's highest priorities included items with little relation to the way firms operate, efforts such as abolishing the estate tax and fighting cap-and-trade legislation.

"The first thing he did when he got there is he looked at their top-priority issues -- estate tax, and a couple other things -- he sat down with the board and said, 'I don't really understand why these are your priorities. I've actually been in business, run a small-to-midsize business. I don't really think about any of these things, ever,'" recalled a top Senate Democratic aide who has worked closely with Stottlemyer and the NFIB. "There was some friction with the board, but I think they respected his background and the fact that he was a good spokesman for small business."

Stottlemyer was an atypical Washington lobbyist. He came up through the business world, rather than political channels, having run a technology startup and chaired a Virginia county Chamber of Commerce. He worked to win over Democrats, earning praise from several liberal and centrist lawmakers.

"Todd did the best he could to be fair and nonpartisan and focus on what it was that his association members felt was good for them -- and not in a partisan way, but in a policy way," Allen Boyd told HuffPost. Boyd, a former Blue Dog Democrat from Florida who lost his reelection bid in November, is a close ally of House Minority Whip Steny Hoyer (D-Md.), a key Democratic liaison to business.

As health care policy became a central campaign issue during the 2008 elections, Stottlemyer not only backed reform, he led the creation of a new reform coalition called Divided We Fail. According to people involved with the group, Stottlemyer reached out to AARP chief Bill Novelli to form the coalition, which expanded to include a longtime NFIB nemesis, the Service Employees International Union.

"Todd was a problem solver interested in exploring new options that met his members' goals -- even if it was contrary to past decisions," then-SEIU President Andy Stern, now with the Georgetown University Public Policy Institute, told HuffPost. "He brought a small-business can-do mentality, and was more a watchdog for his members' interests rather than an adjunct to any political party." (Novelli is now at Georgetown's business school.)

Health insurance is a major expense for businesses of all sizes, but it is particularly hard on small firms, which are unable to leverage a large base of employees to secure lower pricing from insurers. Many small-business owners can't break into the group health-insurance market at all -- forcing them into an individual insurance market ripe with ripoffs, improperly-denied claims and customer-service havoc -- driving up the cost of doing business and making hiring and retaining workers more difficult than such processes are for big firms.

"Today it's not enough to say 'no.' We want to be part of the solution," Stottlemyer said in a May 20, 2008 interview with the Henry J. Kaiser Family Foundation, a health care think tank established by the Kaiser Permanente founder. "We're participating in a coalition called Divided We Fail with some uncommon organizations that we don't have a lot in common with historically ... There are a lot of things we don't agree on, but we do agree very much that health care needs to be on the agenda for the next President of the United States ... We need to do something about health care, because it's strangling our small-business owners."

So long as the government did not place the burden for universal health coverage on employers by forcing all companies to offer their workers a group health-insurance plan-- the so-called "employer mandate" -- Stottlemyer was open to negotiations. He pooh-poohed concerns about the cost of fixing what he called a "crisis" in health care, noting that it was a question of who paid to correct the imbalances in the system, not whether the country could afford it.

"The United States today, as a western industrialized nation, [health care is] 16 percent of our gross domestic product. It's higher than in any other country," he said. "The dollars are there, it's how we spend the dollars."

The NFIB's flirtation with bipartisanship didn't last. After seeing the interplay between the federal government and private health-care companies close up, Stottlemyer headed back to the private sector, taking a position at Virginia-based Inova Health System. He is currently CEO of Interactive Technology Solutions LLC and told HuffPost that he wasn't pushed out of the NFIB.

Whatever the terms of his departure, Stottlemyer was replaced by Dan Danner -- a career lobbyist and former operative for President Ronald Reagan.

The top Senate aide was worried that the NFIB would revert to form following Stottlemyer's departure. "I called their lobbyist and said, 'What's the deal? Why's he leaving? He's great.' She said, 'I don't know, he just wanted to do something else,' and assured me Dan Danner wanted to carry the same mantle that Stottlemyer did. And I was skeptical, because he's a partisan hack," the aide said.

As Obama took office, Danner wasted no time in coming out full force against two of the administration's top priorities, the economic stimulus package and the health care bill -- even though both ended up taking positions the NFIB had long supported.

"We caved on everything they wanted in the health reform bill. Literally, everything," said the aide. "Right now they have no pooling arrangements in order to spread risk. We did that. We did it the way they wanted it done. The tax credits to purchase insurance. No employer mandate for small businesses. All these things that they really asked for, and then some, and they still wouldn't sign on the bill. And then filed the lawsuit."

Small-business groups were divided on the bill. Some, like Main Street Alliance, were full-throated supporters of the full package. Others, like the National Association of Small Businesses, ultimately opposed the legislation but reserved praise for several provisions, such as tax credits focused on small firms. No lobby group, however, went as far to oppose the final bill as the NFIB, which filed a lawsuit challenging it as unconstitutional -- a move deemed too extreme even for the U.S. Chamber of Commerce.

Today, the NFIB is run mostly by and for Republicans. Of the 11 lobbyists currently employed by the NFIB, nine are former staffers for Republican lawmakers (one is a former Democratic staffer and another is an academic with ties to JPMorgan Chase and the New York Federal Reserve). The organization endorsed 319 politicians in the 2010 elections, 310 of them Republicans. And 93 percent of the $745,051 that the NFIB deployed in campaign contributions went to GOP candidates. The group's independent arm spent an additional $1 million, all of it on behalf of Republicans.

The NFIB is merely an extreme example of a Washington phenomenon symptomatic of a diseased system: A group of people form an organization to represent their interests in Washington -- exercising their First Amendment rights -- but over the years, the lobby is captured by partisan politics.

That's fine for the GOP, but the NFIB's partisan orientation is not always as beneficial to its ostensible clients. This conflict was most fully realized during the months-long debate over The Small Business Jobs Act. The bill was was first introduced in the House in mid-May and breezed through the lower chamber, developing into a package rife with benefits for small firms. There were tax breaks for firms that had capital, measures to supply capital to firms that didn't, and lending programs to make everyday operations cheaper.

Politically, the legislation's wheels were greased early on; an aid package for small firms carried popular appeal during a deep recession. The bill had the strong backing of Obama and the Treasury Department, while 15 of the bill's 16 major provisions had a Republican cosponsor. Business loved it: the legislation basically consisted of a set of tax breaks for small firms, plus efforts to provide credit to firms on favorable terms, and encourage investment by eliminating all capital-gains taxes on purchases of stock in small firms.

With hordes of supporters and no natural enemies, the legislation should have run wild through Congress like political kudzu. But that's not how Washington works, especially not in an election year when Democrats are in need of a political victory. Last summer, the bill found itself nearly wiped out. It eventually passed, but was not signed into law until Sept. 27, due in part to the NFIB's own resistance. That delay made it much harder, if not impossible, for small firms to take advantage of some of the bill's major tax and investment sweeteners before year-end deadlines.

Sen. Olympia Snowe (R-Maine), the top Republican on the Senate small business panel, had written or coauthored half of the legislation's major initiatives -- more than any other lawmaker. When it came time to vote, however, Snowe refused to back the package, successfully urging other Republicans on the panel to vote against it as well.

Landrieu opened negotiations with Snowe, but the effort proved futile. Republicans even began publicly bashing the program as "Son of TARP," due to a provision which would have diverted Wall Street bailout funds from the Troubled Asset Relief Program to community banks and provided incentives for those banks to extend loans to small businesses. Republicans had decided that handing the Democrats a bipartisan legislative victory was too high a price to pay for a few thousand jobs and a host of handouts for major campaign contributors.

The NFIB's objection wasn't coming from businesses, said Landrieu, but from political elements of the right that were ideologically opposed to having Treasury involved in expanding access to credit.

"It was an objection, not even really [from] the business groups. It was an objection from sort of the right, nonbusiness groups, about the government creating the Treasury program, the loan program," Landrieu said. "It was more of an ideological objection."

Outside a small cadre of D.C. insiders, the story of the nation's most powerful small-business lobby resisting the year's biggest piece of small-business legislation is virtually unknown. That's because the NFIB made as little noise as possible about the bill.

The NFIB sustained its formal support for the Small Business Jobs Act throughout the congressional debate. But to align themselves with Republican political strategy, the group decided not to "score" a vote on the bill as part of their lobby's small business ratings -- the kind of statistics featured in TV ads during an election season, like: "So-and-so has a 98-percent approval rating from the National Federation of Independent Businesses."

Those statistics only measure what the lobby group considers "key" votes, things that dramatically affect small firms. Things like, say, the only piece of legislation from the past two years that exclusively targeted small businesses. Lawmakers on Capitol Hill closely watch whether a vote is scored by major lobby groups -- if powerful lobbies "score" a vote, it often means the difference between a bill's passage and its defeat.

This profound lack of urgency from the NFIB on small-business lending flew in the face of the group's own research on the subject. In a survey published last February, the lobby group found that 55 percent of small businesses were looking for loans, and most were unable to have all of their credit needs met by market conditions. A full 23 percent of small firms seeking credit were unable to get any loan at all.

By refusing to score the bill, the NFIB was providing direct cover to Republicans, who could vote "no" without damaging their standing with the small business community. And small firms paid the price. With the legislation's chief private-sector champion sitting out the fight, Republicans were able to stall the vote until September, when Sen. George LeMieux (R-Fla.) finally agreed to support the bill, bringing another Republican, Sen. George Voinovich (R-Ohio) along with him. Neither was running for election when their terms expired at the end of the year, and both were less receptive to GOP leadership promises or threats.

Snowe never voted in favor of the bill on the Senate floor, nor did Sen. Charles Grassley (R-Iowa), who wrote much of the bill's tax-cut language. The delay limited the impact of key tax provisions in the bill, which expired at the end of 2010. For capital looking to invest in small firms under the favorable terms provided by the legislation, the window of opportunity was less than three months.

"We just had to push through that objection," Landrieu said. But pushing through Senate objections takes time. Several leading Democrats were eager to have a story written about the partisan nature of the lobby, but declined to go on the record for fear of drawing fire from the powerful lobby. Landrieu added that despite the NFIB's opposition to her bill, she has "a good relationship with them and respect them a lot."

For the NFIB, the Small Business Jobs Act wasn't a top priority -- the group was much more focused on extending the Bush tax cuts, and since the small-business bill didn't do that, they weren't going to put their full support behind it.

"We wanted Congress to address all the tax rates, and they finally did that in December," NFIB lobbyist Chris Walters told HuffPost, referring to the separate tax deal Obama later cut with Republicans. "We were excited they were doing something and focusing on small businesses with the SBJA, but why are you just going to do this small bill while leaving out the '01 tax cuts?"

NFIB Senior Vice President for Federal Policy Susan Eckerly insisted that NFIB's key votes are guided by polling that the group does of its dues-paying members. The organization claims to represent 300,000 businesses, and considers a 7-percent response rate to a survey to be statistically significant, in line with general polling standards.

However many businesses the NFIB represents, there's no doubt that a good chunk of them are run by rabid Republicans. If the more energetically-partisan business owners end up filling out the survey and mailing it back, the NFIB could get a skewed reading of its members' everyday priorities -- but a reading that fits neatly with the agenda of the lobby shop's GOP executives.

The NFIB has amassed a big coalition, but its membership represents only a small slice of the U.S. small-business community. The definition of "small business" is open to interpretation, but according to the Small Business Administration's Office of Advocacy, there were 26.9 million small businesses in the United States in 2008 -- though that figure includes millions of people who work on contract for employers but have no business, in the traditional sense, of their own. Indeed, of the 26.9 million firms, only 6 million actually employ at least one worker besides the principal owner. According to 2004 Census data, 5.2 million businesses employed between one and 100 workers.

"Our members only approved of half the [small business] bill," Eckerly told HuffPost. "There's about $12 billion in tax cuts that they support. There was also more than $30 billion in government loans, and our members are not fans of [Small Business Administration] loans, and they want the SBA loans to be privatized and not part of the federal government."

The SBA covers losses for banks that issue certain kinds of loans to small firms, making small-business loans less risky, thus encouraging banks to lend. The Small Business Jobs Act eliminated fees on existing lending programs, making those loans cheaper, and authorized the SBA to guarantee bigger loans. Other small business lobby groups, like the National Association of Small Businesses, are ardent supporters of SBA lending and frequently push to expand SBA programs. The bill also included a major small-business lending program that did not involve the SBA, diverting Wall Street bailout funds to community banks.

It's not as if the lobby wasn't busy. It was working on two major fronts: extending the Bush tax cuts for the wealthy and opposing a campaign-finance bill that would have restricted the way the NFIB could engage in elections -- the source of its power. Those two efforts, the NFIB insisted, were key to small businesses.

The Disclose Act is the most significant legislative salvo to date against the U.S. Supreme Court's deeply-unpopular ruling in Citizens United v. Federal Elections Commission -- a decision which freed corporations to spend unlimited sums from shareholder coffers on political advertising. NFIB was firmly against the bill, and sent a letter to Capitol Hill telling members of Congress that voting to rein in corporate spending on elections would count against their small business record.

While much of the outrage over Citizens United has coalesced around the unseemliness of corporate cash in politics, the decision also vastly empowered groups like the NFIB. When companies spend political money indirectly through front groups, including the NFIB, they are granted varying degrees of anonymity, depending on the type of front group and expenditure. Companies give money to the NFIB, which in turn runs television ads blasting specific politicians. For businesses that don't want to be associated with buying elections, independent operations can provide both a valuable cloak of anonymity and a popular mom-and-pop brand.

It's unclear how much new revenue Citizens United has secured for the NFIB, but the group spent an astounding $1,006,345 on television ads and communications support for the 2010 elections -- enough to make NFIB one of the 50 biggest spenders in the 2010 ad wars, an amount roughly equal to Tea Party heavyweight FreedomWorks, abortion-rights advocates Emily's List and the anti-gay National Organization for Marriage combined. Every penny of the NFIB's ad expenditures went to aid Republican candidates. The NFIB's ad money came from a separate pool of money than the $745,051 the group gave directly to candidates. The Disclose Act would have required the firms who paid the biggest shares for NFIB's political advertisements to be specifically named in the ads, negating the NFIB's lucrative function as a conduit for politically active firms.

It's easy to see why the lobbyists who worked for the NFIB would oppose the Disclose Act. But it's harder to see why most actual small businesses would find it so problematic. To spend unlimited sums of money, a firm must first have unlimited sums of money available, and small businesses, by definition, have less money than big corporations. When the interests of big business and small business come into conflict, big business can almost always outspend its adversaries.

"Disclose would have made it a lot harder, maybe impossible, for a group like NFIB to act as a conduit for others," said Lisa Rosenberg, a lobbyist for the Sunlight Foundation, a government transparency group.

NFIB's Eckerly acknowledged the point. "Our members pay dues and pay dues to our PAC to represent them, and we feel this would have limited our right to represent them."

The remainder of NFIB's lobbying has been almost exclusively dedicated to opposing the Democratic policy agenda. The group forcefully opposed the 2009 economic stimulus package and financial-regulatory reform legislation, even though all three included major political wins for small businesses.

Economists, and some of the NFIB's own statements, challenge the organization's stated rationale for opposing the stimulus.

"The primary problem facing small business owners right now in terms of job creation is not access to credit; it's a lack of sales, customers and confidence," NFIB Vice President Brad Close said in a June 18 statement. "Small business owners are unlikely to invest in hiring or expanding their businesses when sales and profits remain weak. In order for these business owners to start hiring, demand must pick up first."

But economists who are sympathetic to this NFIB argument emphasize that Obama's economic stimulus package was entirely an effort to boost demand in the economy, which lead to more customers and higher revenues for small firms. The goal of a stimulus, after all, is to stimulate demand.

It's not uncommon for business lobbies to oppose government spending. Business elites are wealthy by definition, and whether they work for large corporations or run their own profitable enterprises, they frequently identify with conservative political and economic philosophy -- until that philosophy hits their bottom line. When the federal funds are targeted directly at an industry, ideological concerns about spending can be set aside.

And yet, the stimulus actually did directly target small business -- and the NFIB still fought against it. Over 30 percent of the federal contracts awarded under the stimulus have gone to small businesses -- more than $10 billion, according to the SBA. The bill also lowered the costs for SBA loans, allowing small firms to access $30 billion in credit. And the legislation featured no less than six tax cuts that could be savored by small businesses.

As policy wrangling gave way to election season this fall, NFIB used the stimulus as a central focus of its airwaves agenda, running ads calling it a "failed" bill that "wasted" taxpayer money on useless government spending.

The lobby's position on the Wall Street reform bill was nearly as aggressive. Large numbers of small establishments are financed by credit cards, and even Danner's NFIB had supported stronger regulations on credit cards, backing a new slate of consumer protections in early 2009. But after the NFIB backed the legislation, a cadre of 22 GOP lawmakers led by Rep. Jeb Hensarling of Texas, now the fourth-ranking Republican in the House, wrote the lobby group a letter saying they were "disappointed" that NFIB chose to score the credit card overhaul and urged the lobby group not to support further financial overhauls. That House Republicans felt free to instruct a lobby shop on what positions it should and should not take -- indeed, to lobby it -- demonstrates just how upside-down the system operates.

If NFIB "key votes" are determined by member balloting, Hensarling's letter was a useless gesture.

But the Republican opposition to credit card reform set the tone for the NFIB's position on broader financial reform. When the Small Business Committee advanced a bill to expand the consumer protections on credit cards to a broader class of cards used by small firms, the NFIB chose not to fight for it. By the time the Wall Street overhaul came up for a vote in the summer of 2010, NFIB was full-on against the package. Most of the bill targeted giant Wall Street firms, and the new Consumer Financial Protection Bureau it created will write and enforce rules to prevent predatory lending -- abuses that often target small businesses.

Two years into the Obama administration, small businesses are still struggling to obtain credit and hire new workers, while big businesses withhold payments from them, horde cash and enjoy record profits. But if the top small-business goal for the past two years was to elect Republicans, the NFIB has done its job.

In the run up to the election, Danner pushed all pretense of bipartisanship aside, cribbing straight from the Tea Party to whip up support for the GOP. "Like [Benjamin] Franklin and his freedom-loving 18th-century peers, you are now being challenged to stand up and oppose a government intent on taxing and regulating many of your nation's job-creating, income-producing enterprises out of business," Danner told his small business clients. "On November 2, our voice and our vote will change the direction of America."

Sam Stein contributed reporting

Register To Vote