Q:

How can politics affect businesses?

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Quick Answer

Politics can affect businesses both negatively and positively through changes made to tax, labor and national security laws, notes David Ingram of the Houston Chronicle. For example, politicians can raise taxes directly on businesses or on individuals, which ends up costing companies in the long run as people spend less money on goods and services. Alternatively, businesses profit when citizens receive tax incentives.

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When national security is improved in a country and the citizens begin to feel safe, they are less apt to hoard their discretionary income in case of an emergency, resulting in more revenues for organizations. Likewise, lowered interest rates on loans and higher returns on investments create a thriving economy that encourages people to spend their money and perhaps even attempt to bankroll their own new businesses.

Small changes in labor laws, such as an increase in minimum wage, can create huge expenses for businesses. The larger a company is, the more expensive these changes are. However, small companies often suffer the most from alterations made to the political landscape because they seldom have the cash reserves available to patch a sudden dent in their finances. As Ingram explains, the government sometimes enacts special assistance programs exclusively available to small businesses to offset these harmful liabilities.

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