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Sequester cuts already hurting small businesses

(MoneyWatch) Although the across-the-board federal spending cuts known as the "sequester" don't take effect until Friday, they are already hurting small businesses around the nation.

Karen Mills, outgoing head of the Small Business Administration, recently that many small businesses have been hit as the Defense Department and other government agencies pared spending in anticipation of the cuts.

In 2011, the Pentagon awarded 20 percent its prime contracts and 35 percent of the agency's subcontracts to small firms, according to the SBA. As a result, more than two-thirds of defense industry purchases are by small suppliers, many of which are the only source for these specialty parts and technologies.

If the cuts are fully implemented , more than 2 million jobs could be lost, with nearly half of those coming from small business, according to a study by Dr. Stephen S. Fuller of George Mason University in conjunction with Chmura Economics and Analytics.

"Many small businesses are subcontractors, suppliers and vendors to larger scale businesses that are the prime federal contractors," he said. "These subcontractors, suppliers and vendors have little recourse when their contracts with their primes are scaled back or terminated; in fact the suppliers and vendors may not even know that their business is linked to a federal contract that could be canceled due to something called 'sequestration.' "

In addition to the loss of jobs, small business owners are worried about what the sequester cuts will do to the government research they rely on, according to a new poll. More than two-thirds of those surveyed said basic research funded by the federal government is important to private sector innovation. The Zogby poll commissioned by Research!America also found that 45 percent didn't want medical research funding to universities and other non-governmental institutions cut as part of sequestration.

Despite these preferences, 60 percent of respondents thought that the mandated cuts were a good way to reduce the deficit.

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