As is customary at the start of Small Business Week, the White House offered platitudes. The “engines of our economic progress” are small businesses. The “pillars of their communities.” And so forth.
However, a few days later, the House of Representatives, with the support of the White House, announced one of the most dramatic assaults on small businesses in decades. Lawmakers unveiled a massive tax-hike package that would clog those “engines of our economic progress” and destabilize many of those “pillars of their communities.”
Words are meaningless in Washington, D.C.; actions are what matter. And, if carried out, these actions would be disastrous. The tax increases would fund a massive $3.5 trillion federal government expansion, but they couldn’t come at a worse time for small businesses. You’d think the White House would be aware of this. After all, the administration noted in its proclamation for Small Business Week that the pandemic had a significant impact on small businesses.
That is a significant understatement. Most small businesses struggled for 18 months to survive the pandemic and government-mandated shutdowns.
Washington’s response has frequently made matters worse, most notably by resulting in a large number of unfilled positions. When you factor in shaky supply chains, it’s painfully clear that a massive revenue grab by the federal government isn’t the answer. How are small businesses supposed to recover if Washington taxes them like they did in the 1970s?
Under the proposed plan, small businesses will face more than one or two tax increases. They are considering a slew of tax increases that would hit them from every direction:
The deduction for small businesses would be limited. This game-changing policy provides unprecedented relief to small businesses. However, Congress now wants to limit eligibility, which will harm small businesses that invest in jobs and equipment.
The estate tax would be increased. The current exemption would be reduced by half, exposing more small businesses and family farms to large tax bills when loved ones die. Some may be forced to liquidate in order to pay.
Taxes on capital gains would be raised. The increase, from 23.8 percent to 28.8 percent, would mean less money to invest in the business, offer wage increases to employees, and give back to the community.
Income taxes on small businesses would be raised. There is a 3.8 percent surtax aimed specifically at small businesses. It’s an obvious attempt to take more money from businesses that can least afford it.
With the 3.8 percent net investment income surtax and the 3% surtax on high earners added, the top income tax rate would be 46.4 percent. Nonetheless, the majority of small businesses rely on personal income as their primary source of business investment. They’d have less of it now, and they’d have to pay higher taxes on a larger portion of their income because the rate would kick in at a lower threshold.
These tax increases are bad enough, threatening job losses and store closures across the country. However, the White House and Congress also want to impose additional costs on small businesses.
For example, the $3.5 trillion House bill would require all businesses with five or more employees to automatically enroll them in a retirement plan. A retirement plan is provided by one-third of small businesses. But Congress has a simple solution: force the rest of the country to do it anyway! Never mind the consequences, which would be similar to tax increases.
If these tax increases and mandates become law, the consequences will be severe and long-lasting. The country may recover in time, but many small businesses will not be around to see it.
It wasn’t just wrong to implement these tax increases and mandates during Small Business Week. It is incorrect to consider them at any time. And it is proper to defeat them – both immediately and permanently.