OPINION:
Sen. Joe Manchin rightly expressed big concerns with the Build Back Better Act. Its mammoth spending and tax measures would have fueled inflation and deprived small businesses and entrepreneurs of the capital they need to survive and recover. His Democratic colleagues are trying to revamp the legislation — possibly through a piece-meal approach — to win back his support and get “something” through in an election year. Hopefully, Mr. Manchin will continue to approach BBB 2.0 with great caution and concern.
Small business owners can only hope a new bill looks nothing like its predecessor, which again, included an assortment of tax hikes, market interventions and inflation-stoking policies that would have harmed workers and Main Street businesses.
The first rendition of BBB was very expensive — significantly more than advertised. Independent budget watchdog groups calculated about $2 trillion in new spending. But those estimates were based strictly on the text of the bill, which had many programs expiring after just a few years.
In reality, Congress would have almost certainly worked to extend many of those programs. The Committee for a Responsible Federal Budget ran the numbers and calculated that if all the temporary programs in BBB were made permanent, the bill would cost nearly $4.8 trillion over 10 years.
Even if the bill’s price tag wouldn’t have risen that high, the fact remains that massive new government spending increases aggregate demand and further drives inflation. In November, inflation already grew at its fastest rate since 1982, up 6.8% from a year earlier. For all of 2021, inflation came in at 7%, which was the fastest rate since 1982.
Inflation, especially at these high levels, creates uncertainty and drives up costs for consumers and businesses alike, hitting supply chains and making basic necessities — like food, shelter and gas — more expensive. Especially in the COVID-19 economy, most small business owners have not gotten a raise and their revenues are volatile or weak, which makes it much more difficult for small businesses to keep their doors open and compete against larger firms.
The inflationary effects of BBB were bad enough, but the legislation also took aim at small businesses specifically. Democrats claimed their bill would be paid for through increased taxes on corporations and the uber-rich. However, many small-to-mid-size businesses would have been footing the bill.
A White House fact sheet stated that BBB would have imposed new taxes of 5% on income over $10 million and 8% on income over $25 million. But it failed to mention that for pass-through businesses held in trust — sole proprietorships, partnerships or S-corporations that file individual rather than corporate taxes — these income thresholds would have been 50 times lower, or $200,000 and $500,000, respectively.
The overwhelming majority of small businesses are pass-throughs, with a great many earning more than $200,000. And because small businesses commonly use trusts for succession planning, BBB’s higher tax rates would have harmed tens of thousands of modestly-sized family businesses across the country.
The spending bill also singled out small businesses in the biopharmaceutical industry. As written, BBB would introduce Medicare price controls on a range of popular medicines. Drugmakers who don’t accept the terms would face a punishing tax.
This swipe at biotechs would have an immediate effect, slashing investment into research and development. It takes many years and more than $2 billion, on average, to bring a single new drug to market. The biggest companies in the sector may be able to survive price controls, but as investment dries up, smaller biopharmaceutical companies simply won’t have the budget to keep their doors open. The 80% of biopharma firms with fewer than 100 employees would feel the brunt of this measure.
In short, if these measures make it into BBB 2.0, small businesses can expect to face more inflation, new taxes and misguided price controls in 2022. These are not the policies that small businesses and local communities need to recover and “build back better” in 2022.
• Karen Kerrigan is president and CEO of the Small Business & Entrepreneurship Council.
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