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The Small Picture

How does the federal deficit affect your business?

This story appears in the June 2003 issue of Entrepreneur. Subscribe »

Although the national deficit often seems like a topic solely of interest to academics and policymakers, in reality, it has a significant impact on small businesses. After decades of deficits, the federal government had balanced its budget by 2000, leading many businesspeople to assume the deficit was banished.

But as the foreign capital flowing into the United States has fallen, and the administration's economic stimulus plans slash taxes, the deficit has mushroomed. According to Robert E. Scott, an economist at the Economic Policy Institute, a Washington, DC, think tank, as the deficit rises, it forces the value of the dollar down and could lead to a spike in U.S. interest rates. As the Center on Budget and Policy Priorities, a nonpartisan research organization in Washington, DC, has shown, "higher interest rates would raise the cost of borrowing for small businesses, making it harder for them to [buy] capital equipment and pay off loans."

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