The President sent his budget to Congress on Monday and, despite the media attention, its passing in its entirety is very unlikely. "Dead on arrival," declared some Republicans, which doesn't exactly seem like a warm embrace. The Republicans plan to submit their own budget early this Spring and the hope, naïve as this may sound, is that both parties will ultimately compromise on a deal. And a deal would include some of the President's proposals. If you're running a small business the trick is following the money. Because, depending on what's agreed on, there will be opportunities for you. And when it comes to making money, the smart business owners I know put their politics aside and do what's best for their companies and the people who rely on them.
So where can you profit from the President's budget? Here are a few things to consider.
Defense and Construction. The President wants to spend about 7% beyond previously agreed-upon sequestration cuts and increase military spending by about $38 billion. In addition, he wants a $478 billion investment in infrastructure. His proposals, particularly on defense expenditures, have bi-partisan approval. And keep in mind that, like all government spending, it could take months or even years before any approval in spending turns into actual contracts and cash payments. If you're in the defense or construction industries your antenna should be raised. Have you considered going through the process of being a government contractor? Is your business female owned or minority-owned? If not, then do you have customers that do business with the government? Do you foresee them benefiting from these expenditures and is it worth you taking steps to work closer with them? We're talking billions of dollars here -- not just for those in the industry, but those serving the industry.
Education and Childcare. Similar to defense and construction, the President is appealing to his base through tax incentives, particularly increasing the earned income tax credit and tripling the current childcare tax credit for working families. This means that these families will be incentivized to spend more on childcare and educational services. In addition, he's proposing billions in spending on education initiatives, more money for organizations like Head Start and a program to help more people go to community college. Again, it's questionable how many, if any, of these initiatives will make it through Congress. But for small businesses and non-profits in education services or indirectly serving this industry (training, certification, outsourcing, supplies, technology, real estate, maintenance, transportation, food preparation, etc.) there could be a significant potential for business growth. Like defense and construction, you don't have to be doing business with the government here -- just targeting those customers that will benefit the most from the government's spending plans and marketing to them.
Manufacturing and R&D. The President wants to expand his Manufacturing Innovation Institutes program. Through these institutes, and other initiatives with the Department of Commerce, the White House has provided opportunities for manufacturers to raise money, find locations for their factories, make connections with overseas partners and get access to more skilled resources. The President wants to lower the corporate tax rate overall to 28%, yet even further (25%) for manufacturers. This administration has not been the most business-friendly one in recent times, but it does love manufacturers -- so if you're in that industry it's a good time to profit from their resources. And the same goes for research organizations. The President's budget wants to provide more funding (a 5.5% increase) for research and development (energy, biomedical research and the environment) and make the tax credit for research and development permanent. If approved, R&D opportunities will be significant.
Taxes. How will all these goodies be paid for? Yeah, you guessed it. People like to talk about revenues and sales and growth and that's good. But I'm an accountant and the one thing that accountants know is that in the end it's all about profits. And, in most cases, the biggest single expense line item that takes away profit is taxes. So when Washington starts talking about "tax reform" our eyebrows raise because...well...it sounds like tax increases. And in the case of the President's budget proposals, it is. He wants to raise the capital gains rate for those making more than $500K a year and take away an estate tax loophole. He also wants to tax companies that are parking their profits overseas both now and in the future. The Republicans are fighting these proposals but it's possible that some type of compromise will be reached and that could mean bad news for you. Smart business owners know the significance of tax changes on their businesses and plan accordingly. This year, make it a point to have a closer relationship with your accountant (yeah, not the most exciting guy in the world I know) and keep a close eye on what Washington decides. You want to make your moves (i.e. take advantage of lower capital gains taxes, gift more, move overseas cash) in advance of being subject to potential taxes.
Remember -- this is not about politics. For you, it's about money. Growth. Profits. You may be terrified by growing deficits or have a vehement opposition to more tax increases. Go ahead and let your voice be heard inside of the voting box. But don't let those emotions cloud your business judgment. You have people that rely on you and you must plan accordingly to profit from Washington's policies, whether you agree with them or not.
A version of this column previously appeared on Inc.com.