Draining Businesses of Capital (via TAX HIKES) Will Extend and Worsen the COVID Economy

By at 4 October, 2021, 5:10 pm


By Karen Kerrigan –

Key findings from the Census Bureau’s Small Business Pulse Survey last week should deliver a jolt of reality to President Biden and his Democrat allies in Congress who are pushing hard to raise taxes on America’s businesses. As made clear by the findings, small businesses are enduring a long and exhausting grind of operating in this COVID economy. Business owners are not only working to dig out of revenues holes from the Great Shutdown that followed the immediate COVID shock, but they currently face an array of complex challenges that are taunting their efforts to turn the corner toward recovery.

Navigating these challenges requires ample capital to deal with new and unexpected costs, to compete for labor, to change gears by investing in new models, and to generally ride out the uncertainties that lie ahead. Draining capital from businesses and the private sector through massive tax increases, as proposed in the Democrats $3.5 trillion spending plan, would negatively impact all types of businesses across the country – not just the wealthy and big corporations. And, as noted in a new report for SBE Council by EY Quest, none of the major proposals being pushed by the White House and their allies in Congress would be good for the economy, which means they are bad for Main Street small businesses and American workers.

The current state of small business as captured by the most recent Small Business Pulse Survey, makes clear that businesses across the country need the government’s support. They need policy stability. Not new tax hikes or regulatory burdens.

Here are some highlights of this past week’s findings:

The COVID Economy Continues to Inflict Hardship     

Business owners report they are still feeling significant effects from the pandemic – 67.5% report a negative effect, with 24.1% stating it is a large negative one and 43.4% report a moderately negative one.

Only 23.9% report little or no effect.

Obviously, harder hit sectors are reporting more pain. For example, 50% of accommodation and food services businesses report a large negative effect.

So, small businesses are still being squeezed by this pandemic and it will be some time before they get to the other side of it. In fact, 39.3% of small business owners believe it will be six months or more before their business “returns to its normal level of operation.”

Only 19.1% of the businesses report that they are currently back to normal.

Inflation is Squeezing Small Businesses

Higher costs continue to hit these small businesses. A whopping 70.1% report paying higher prices than “what was normal” before the start of the pandemic (29.4% report large price increases and 40.7% report moderate price increases.).

In industries like construction, manufacturing, wholesale trade, and accommodations and food services, the percentage of small businesses reporting large price increases is much bigger.

Supply Chain Issues Disrupting Operations

Domestic supply chain woes remain a problem for many small businesses, with 43.3% reporting delays and difficulties. That challenge is more widespread in manufacturing (69.8%), retail trade (67.2%), construction (62.6%) and accommodations and food services (60.6%).

In Search of Workers

On the labor shortage front, 33.9% of businesses report having difficulty hiring employees. Again, in certain sectors, that percentage is much higher – accommodations and food services 64.9%, health and social assistance 42.4%, manufacturing 42.1%, and other services at 41%.

Lower Sales and Revenues Still Plague Some Businesses

Regarding business revenue, 24.2% reported decreases last week and only 7.9% experienced increases. Again, and sadly, accommodations and food services businesses are disproportionately impacted, with 35.5% reporting decreases.

The latest personal income report from the U.S. Bureau of Economic Analysis (BEA) substantiates the survey’s findings on the reported revenue challenges. As noted in an October 1 blog post by SBE Council chief economist Ray Keating that details BEA’s August data, “small business income (as measured in this report by ‘proprietors’ income with inventory valuation and capital consumption adjustments’) has declined for two months in a row in nominal terms. When inflation is factored in, of course, the decline worsens.”

Keating adds that small business income has been volatile since the pandemic hit, and is down from October of last year.

Taxing Our Businesses Won’t Help the Economy “Build”, Come “Back” or Get “Better”

President Biden wants to “Build Back Better” through tax increases that siphon capital and resources away from hurting businesses that need their capital to survive, recover, and hopefully (eventually) get back to growth. As I noted in a media release about SBE Council’s new EY Quest report:

“These significant tax increases strike at the heart and soul of a vibrant, innovative and dynamic economy, which is all about capital access and formation and incentives for investment, risk-taking and entrepreneurship. Taxing more means our economy gets less productive activity. That means fewer startups, weaker Main Street businesses, less innovation and quality job growth, along with the destruction of local legacy businesses, which are economic drivers and stable employers in local communities nationwide.”

Thankfully, there are some members of the President’s political party who see the dangers of imposing harmful taxation on businesses to pay for a massive expansion of government in the middle of a destructive pandemic.

Small business owners hope these more rational minds prevail.

Karen Kerrigan is president & CEO of the Small Business & Entrepreneurship Council.


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