This week, congressional committees are crafting the details for President Biden’s proposed $3.5 trillion federal stimulus that will be paid for, in part, by raising taxes on businesses. That is the worst thing Congress can do. Our elected leaders in Washington should do everything possible to help America’s job creators and innovators, not hurt us.
To say the last 18 months have been a struggle is an understatement. As chair of the U.S. Chamber of Commerce Small Business Council, I’ve witnessed the heart warming and the heart wrenching throughout the pandemic. From store owners going to great lengths to ensure the health and safety of their employees, to shop local gift-card campaigns, to agonizing decisions on whether to limit hours, let employees go, or close down for good.
As terrible as COVID-19 itself is, the impact of the virus is also being felt by small business owners, like myself, in the challenge of finding qualified and willing employees, equipment shortages and rising costs that I can’t pass on to my customers.
At a time when so many small businesses like mine are struggling, now is the worst time for Congress to be considering tax increases.
When Biden first revealed plans for a massive stimulus, he characterized raising the corporate tax rate from 21 percent to 28 percent as only affecting big business. While proposing a tax hike on larger businesses that employ more than half of America’s workers is not a good idea either, the mischaracterization of the president’s tax plans as harmless to Main Street employers ignores the fact that 1.4 million small businesses are structured as corporations.
For Small Business Council member Michael Canty, president of Alloy Bellows & Precision Welding, Inc. near Cleveland, Ohio., Biden’s tax proposal equates to a 33 percent increase in taxes for his business, which is structured as a C corporation. Canty would like to grow beyond his staff of 85, but instituted a hiring freeze for fear of tax increases and an increasingly complex regulatory environment. Increased taxes that stifle job creation are an awful prescription for our country as our economy continues to recover from a COVID-induced recession.
The president and congressional committees are also considering doubling the capital gains tax rate from 23.8 percent to 43.4 percent. This tax hike was portrayed as targeting Wall Street tycoons, but the reality is raising the tax will drive investors away from innovators like Small Business Council member Paul Shmotolokha, founder of New Use Energy in Bellingham, Wash.
Shmotolokha’s business engineers and manufactures a range of portable solar and battery systems which can replace traditional fossil fuel alternatives. It raises funding under Rule 506(c), which requires purchasers to be accredited investors that meet specific criteria. Raising the tax rate on capital gains will make it harder for Shmotolokha, and for thousands of other entrepreneurs like him, to attract accredited investors as the increased tax rate will drive investors away from opportunities by lowering the potential reward.
We should be rewarding investors for taking a chance on companies such as New Use Energy, as well as other cutting-edge enterprises that collectively are keeping America competitive in a global economy. Penalizing investments in innovators is a terrible idea.
The president’s tax plan is also proposing to raise taxes on small businesses when the business owner dies — the nail in the coffin for the tax plan for me — as I think about passing my landscaping business along to my daughters.
Under current law, the Internal Revenue Service (IRS) allows a “stepped up basis” that calculates the value of my business when I die. If my daughters choose to grow Highland Landscaping from a $2 or $3 million enterprise to a $10-$20 million conglomerate, they would only be taxed on the gains realized under their ownership and not penalized by the work I am doing now to make my business successful.
The president’s tax plan, now being considered by Congress to pay for a $3.5 trillion stimulus, removes the “stepped up basis” and would tax the growth of my business, leaving my daughters with a massive tax bill at my death.
Small business owners should dream about passing their success on to future generations. Increasing taxes on families and entrepreneurs is why small businesses are fighting against the $3.5 trillion stimulus Congress and the president are considering.
Ian MacLean is chair of the U.S. Chamber of Commerce’s Small Business Council and president of Highland Landscaping, LLC.