Washington’s Latest Spending Proposal and the Small Business Recovery

Date: May 06, 2021

Spending plans would add mandates, taxes for many small businesses, family-owned businesses, and farms.

Washington’s latest multi-trillion-dollar proposals may target the largest corporations to pay for their spending, but unfortunately, the plans would more heavily burden many of America’s small businesses with new taxes and mandates. NFIB President Brad Close recently urged Congress and the Administration not to harm small business job creators:

America’s small businesses create two-thirds of all net new jobs. After suffering through the pandemic and government-mandated shutdowns, the last thing small businesses and their employees need are tax increases and more government mandates. The Administration and Congress should pursue policies that enhance job creation and the small business recovery.”

– Brad Close, President NFIB

Here’s what small businesses need to know about the American Families Plan and American Jobs Plan proposals:

Family-owned businesses would see a new death tax.

A long-standing part of the tax code known as the stepped-up basis would be repealed. Without it, the IRS will calculate the value of something that’s inherited – like a building or farmland – very differently. A study published in April 2021 by the Family Business Estate Tax Coalition (FBETC), found this change would lead to 800,000 fewer jobs in 10 years and an additional 100,000 fewer jobs each year thereafter.

With the proposed repeal of the stepped-up basis, family members who inherit something when a family business partner dies, such as a building or farmland, would need to pay capital gains taxes on it. Additionally, the administration’s proposal would nearly double this capital gains tax rate to 43.4%.

These two changes have the power to prevent family-owned businesses from adding jobs and further investing in their employees as they plan for expected tax bills. Not only that, surviving family members may be forced to close or sell their family’s business to cover the larger tax bill.

Tax rate increases. And for some of the smallest: a nearly doubling of their 2017 rate.

Small businesses organized as C corporations would see their tax rate increase to 28%. For the smallest C corporations, those making less than $50,000 in taxable income per year, the new rate would be an especially dramatic increase – nearly doubling the rate they paid just a few years ago. Still other businesses – those organized as pass-through businesses – may see tax increases when business earnings are become taxed at a higher rate.

America’s small businesses are the third-largest economy in the world and absorbing a dramatic tax increase would mean less to reinvest in growth, jobs, hiring, training, and benefits for employees.

A Big Labor threat. 

The American Jobs Plan calls on Congress to pass the Protecting the Right to Organize (PRO) Act. The PRO Act would dramatically upend long-standing employment law in favor of labor unions at the expense of small businesses and their employees.

This legislation has been rejected by the courts and opposed by Congress for decades.

Workforce and operations mandates.

Small businesses are always at a disadvantage to their larger competitors when it comes to weathering massive government mandates. The proposed labor mandates in the Administration’s policy priorities will disproportionately burden small businesses, including a mandate that employers provide a paid sick leave program, and a new government-run family and medical leave program.

Many details of these labor mandates are yet to be announced, but now is not the time to add policies and regulations that could break the fragile small business recovery.

Take Action: The small business recovery is fragile. Don’t let Washington break it. Please use NFIB’s simple action alert tool to email your members of Congress and ask them not to let the latest plans in Washington break the fragile small business recovery.

Fortunately, the Small Business Deduction (Line 13 on the 1040 Tax Form) remains intact in the American Jobs Plan and the American Families Plan. However, that may change as Congress creates the legislation that would make these plans into law. This deduction has been an important win for small business owners, allowing a deduction of up to 20% of eligible business income. You can click here to answer a few questions that will help NFIB inform Congress on the continued importance of the Small Business Deduction. For more information on this important deduction, click here to hear small business owners discuss how they’re using the deduction to reinvest in their employees.

Related Content: Analysis | Economy | Labor | National | Taxes

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