PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Fuel for a Recession: Democrat’s Tax Hike on Small Businesses

By at 11 July, 2022, 3:10 pm

For Immediate Release

Washington, D.C. – In response to a Democrat tax hike proposal that is circulating on Capitol Hill, and is being billed as a plan to “save” Medicare by increasing taxes on small businesses, Small Business & Entrepreneurship Council (SBE Council) president & CEO Karen Kerrigan and chief economist Raymond Keating issued the following statements:

“The Democrat’s tax proposal would punish and harm the very small businesses that are working hard to keep our economy afloat. These small businesses need their capital to invest and pay workers, to innovate and cope with inflationary pressures that are squeezing their competitiveness and bottom lines. Growth-oriented small businesses are successful because they plow profits back into their firms, which generate wealth and financial stability for local communities along with good paying jobs. The last thing small business owners should have to worry about is a Congress or President scheming to take more of their resources during this precarious economy. This proposal to raise taxes on small business owners is beyond alarming,” said SBE Council president & CEO Karen Kerrigan.

SBE Council’s recent “Small Business Policy and the Economy Survey” found that 88% of small business owners believe a recession is coming over the next several months, and they share a dim view of current economic conditions – 44% report that conditions are “poor” and 33% say they are “fair.” Due to inflation and slowing revenues, 62% are slashing business spending. The need for tax relief and simplicity was cited as a top four issue along with inflation, high health coverage costs, and supply chain woes.

Kerrigan added:

“Punishing policy proposals like the tax hike being considered by Democrats is why small business owners believe the current majority party in Washington is completely out of touch with the needs of local businesses and what is happening in their local economies. In an early 2022 SBE Council survey of new entrepreneurs, only 5% of business owners said Congress’s policies are helping their startups, and a mere 9% thought President Biden’s policies make it easy to start or grow a business. Despite the fact that entrepreneurs and small business owners keep saying they need relief, support and a new direction on policy, Congress and President Biden are not only doubling down, but now openly targeting this critical sector of the U.S. economy.”

SBE Council chief economist Raymond J. Keating observed:

“I am beyond bewildered. American entrepreneurs, small businesses, and workers are struggling to deal with high inflation and an economy that teeters on recession, and Democrats in Congress are looking to impose higher taxes on small businesses. This is bizarre. Higher income taxes on pass-through businesses quite simply would mean that those businesses would have fewer resources and incentives for investing and hiring. In a bad economy, very few economists, outside of those who let politics crowd out economics, would argue that increasing income taxes on entrepreneurs and small businesses would make sense. Their arguments might differ, but the end result would be the same: Raising taxes will only make a bad economic situation much worse.”

Background: Currently, the Net Investment Income Tax (NIIT) only applies to investors. The proposal would impose the 3.8% tax on the income of active business owners (with incomes above $400,000 for singles and $500,000 for married couples). The proposal would also limit the ability of small businesses to fully deduct their losses during an economic downturn by expanding and extending the so-called “excess business loss limitation” for “noncorporate taxpayers.”

RELATED SBE COUNCIL CONTENT:

Recession Watch Update: Worries Mounting, July 11, 2022

Kerrigan in TIPPS Insight: Biden’s Policies Darken Small Business Outlook, June 30, 2022.

CONTACT:

Karen Kerrigan, kkerrigan@sbecouncil.org

Ray Keating, rkeating@sbecouncil.org

SBE Council is nonpartisan advocacy, research and education organization dedicated to protecting small business and promoting entrepreneurship. For 28 years, SBE Council has worked on and advanced a range of private sector and public policy initiatives to strengthen the ecosystem for strong startup activity and small business growth. Visit www.sbecouncil.org for additional information. Twitter: @SBECouncil

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