President Joe Biden speaks while visiting Smith Flooring, a minority-owned small business, to promote its American bailout plan in Chester, Pennsylvania on March 16, 2021.
Andrew Caballero-Reynolds | AFP | Getty Images
Several key policy priorities on President Biden’s agenda are aimed at curbing the wealth and power of the largest corporations. However, as the debate has shifted to Capitol Hill and the president’s spending ambitions have taken by surprise in large measure, small business policy experts are increasingly feeling that it might be too early, and Main Street might be on several key issues at a time becoming a financial victim Many operations are just getting back on their feet after the pandemic.
New company incorporation dates are going in the right direction and that is a signal of confidence in the economic recovery.
“The foundation for great economic recovery and a return to pre-pandemic levels is in place, but playing with tax rates at a time like this has a dampening effect,” said Karen Kerrigan, president of the Small Business & Entrepreneurship Council.
Some of the best-known proposals include increasing corporate tax to 28% at a time when companies like Amazon have made a payment in recent years effective tax rate of zero. Many independent contractors are also concerned about health and safety in the PRO Act, which could lead gig economy players like Uber and DoorDash to treat independent contractors as employees. The administration is vocal about his Targeting the gig economy.
These proposals should come as no surprise – they were part of Biden’s platform when they ran for the presidency. Ambitious spending initiatives for infrastructure and American workers can lead to benefits in the form of economic growth and assistance to the government in funding future employee benefits.
“Proponents of the president’s proposals will show the broad economic benefits,” said Kevin Kuhlman, vice president of federal government relations for the National Federation of Independent Business, and there are small business sectors where spending could lead to growth such as broadband and infrastructure Projects. But even if these projects last a few years, they are only temporary, while the effects of tax changes could be permanent.
“They are definitely very positive about infrastructure spending, but the timing is everything and when they have a year of devastation and are digging out a huge economic hole, they just fear what further impact tax increases will have,” Kerrigan said. “Is it just the opening salvo? We are spending a lot of money. There will be more tax increases to pay the whistler than we know today, and that’s a big problem,” she added.
Anthony Nitti, national tax partner at RubinBrown, said business owners who have paid attention shouldn’t wake up in shock after Biden’s latest tax policy was revealed this week. There weren’t any big surprises in that latest tax proposals, but there have been some additions and omissions that are noteworthy.
For many small businesses, it is good news that the president did not highlight an increase in social security wage tax contributions, which were considered to double from current levels at higher income levels. “We didn’t see that in the last proposal,” said Nitti. “Entrepreneurs will be relieved.”
There was also no new discussion of changes to the pass-through deduction for companies established as S-companies and partnerships that could expire at higher income levels. However, if the pass-through treatment, which allows for a 20% business income deduction, is not revised and C companies are subject to a higher corporate tax rate, the way small businesses are included in the future could be reversed, says Nitti.
S-Corps and Partnerships could have a better tax position than C-Corps if the corporate tax rate climbs to 28% – if Congress levels off at 25%, the math would change. But with the 20% income deduction available to pass-through businesses, even at a top tax rate of nearly 40%, the structure could be more attractive. Lowering the corporate tax rate to 21% under Trump eliminated the benefits of the pass-through structure, but that could “change dramatically,” Nitti said.
Kuhlman said there was major concern about the C-corp problem for the smallest businesses, as the corporate income tax hike was not discussed in terms that would be graduated for smaller, lower-income businesses. “The target here are the largest companies, many of which do not pay corporation tax. The problem, however, is that two-thirds or even more than that of the companies are small businesses,” Kuhlman said, noting that the majority of the C-Corps doing so has revenues of less than $ 1 million.
Eliminating the current long-term capital gains rate for individuals with taxable income greater than $ 1 million would mean it is at the highest ordinary income level of 39.6%, which is nearly double the highest tax rate of 23 .8% is in line with applicable law and would have a major impact on selling a business to an owner above the taxable income threshold.
In a recent analysis written for Forbes, he concluded that for companies currently set up as C companies – and more moved into that structure after the 2017 tax law changes – coupled with the proposed increase in the corporate rate of 21% to 28%. the combined maximum rate for shareholders would increase from around 40% to almost 60%.
“When I’m a business owner, I walk away from this week with two thoughts: I don’t know if my business will be in the right structure and if I plan to keep it going. In the long term, I’d better accelerate my exit strategy, if capital gains really double in the future, “said Nitti.
“Tax policy is the biggest disadvantage in my opinion. Small to medium-sized companies want to operate in a stable political environment,” said Kerrigan. “The back and forth about tax rates makes it difficult to plan.”
Some of the tax proposals that focus on high net worth individuals will be negative for the minority of small business owners in the highest income brackets, and many independent contractors may not have this as a primary concern, but it is the PRO law that seeks to rank more freelancers than White-collar workers is the priority of Biden’s policy that this segment of the small business community has largely rejected. One recently Targetable survey found that 45% of small businesses said it would destroy their business.
“It seems that these guidelines are aimed at large companies, but the problem is that it weighs on smaller companies,” Kuhlman said. He said the “ABC test” was used to qualify employees under the PRO Act would violate independent contractors and franchisees, as well as any business that requires the flexibility of using independent contractors.
There is also a push and pull of other progressive political initiatives. President Biden’s support for the Earned Income Tax Credit and Child Tax Credit can benefit small businesses by easing wage pressures. However, these benefits can be reduced when set against the president’s support for raising the federal minimum wage to $ 15 Sickness and family leave benefits This can impose more funding needs on employers.
While recent proposals provide a more complete picture of what the administration is seeking, these multiple elements of employee benefits that can be passed on to employers in the form of increased labor costs leave the small business sector “with more” questions than answers “, at least for the time being. “said Kuhlman. While general public support for Biden’s policies may be more focused on the infrastructure benefits from spending, small business owners are more used to being sensitive to the cost side.” There are some concerns that the balance sheet is not precisely aligned is and the government needs to come back to do more, “he said.