Biden Administration Plans to Increase Taxes on 2.1 Million Small Businesses

The Small Business and Entrepreneurship Council (SBE Council) is warning that the Biden Administrations’ tax plan would raise taxes on 2.1 million small businesses – in contrast to the Administrations’ claims.

Last week, the White House issued a Fact Sheet on the plan claiming the tax proposal will “protect 97 percent of small business owners from income tax rate increases while delivering tax cuts to more than 3.9 million entrepreneurs.”

According to the Tax Foundation, US businesses currently remit around 93% of all taxes collected in the US thus funneling money to just about all federal programs.

During the last administration, the Tax Cuts and Jobs Act lowered the corporate federal tax from 35% to 21%. Before this, the country’s combined corporate tax burden was the highest in the Organisation for Economic Co-operation and Development (OECD) countries. When the corporate federal tax was dropped to 21%, the combined tax burden (including state and local) placed the US smack dab in the middle of OECD countries.

Today, the Biden Administration wants to rocket the corporate tax higher to 28% causing business advocates to worry that it will make the US less competitive in the global marketplace. If this change takes place, the US will once again find itself in the top tier of OECD corporate tax rates.

Even more concerning is the fact the US economy is still bouncing out of a COVID impacted market that saw small businesses hammered with shutdowns and diminished operations. While the Fact Sheet issued by the White House sounds rosy, the SBE Council claims that its numbers are off base even as President Biden states that only 900,000 small businesses may face higher taxes.

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According to SBE Council Chief Economist Raymond J. Keating, the estimated 900K businesses that will be paying more in taxes is actually far higher – in fact by more than 2X. To quote the advocacy group that supports entrepreneurs:

“… the White House is simply ignoring the fact that most C corporations are small businesses. The Small Business Administration defines small businesses as having fewer than 500 employees. It turns out that 99.89 percent of employer corporations (based on the latest Census Bureau data) have fewer than 500 employees. That’s 933,000 businesses facing a tax increase. Second, what about nonemployer corporations? There are (again, based on the latest Census Bureau data) another 379,000 of those businesses that would face a tax increase. Third, if we accept the White House’s assertion that 2.6 percent of passthrough small businesses would directly face a tax increase, that’s about 790,000 businesses. So, based on these numbers, at least 2.1 million small businesses would be facing higher taxes, directly, under the Biden plan.”

The Biden Administration also wants to push the capital gains tax higher too. For entrepreneurs that frequently reward early employees in shares, this could diminish the ability of these early-stage ventures to distribute prosperity when a startup turns into a success.  On the other end of the spectrum are small family businesses that may find it difficult to transfer a business to the next generation as frequently these firms are highly illiquid.

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Simultaneously, the Biden Administration is promoting a Global Minimum Tax – a dicey policy goal at best.

While the concept has garnered support from other developed countries the reality is that it will be very difficult to enforce as every country has special programs, deductions, and transfers that can make the GMT a fabulist ambition. Will a global tax regulator be next?

SBE Council adds that the GMT is largely targeting successful US tech firms and thus mainly paid by the US:

“In the end, limiting tax competitiveness and hiking costs directly on large U.S. businesses – such as leading technology firms – will be a negative for the overall economy, and that includes for small businesses. Consider that, for example, raising costs on large technology firms will negatively affect those businesses, and therefore the small and mid-size businesses (SMBs) that are not just customers of those large businesses but also partners with them, that is, they grow and profit from using platforms like Amazon, Facebook, and Google.”

Keating ends by explaining:

“Even in politics, trying to assert that increased taxes on businesses, including on millions of small businesses, is good for small business is like saying up is down, two plus two equals three, and the sun rises in the west and sets in the east. It’s simply ridiculous on its face. It’s a bizarre fantasy that no one should take seriously.”

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