Today, the Main Street Employers Coalition joined with more than 70 trade associations in opposing the Inflation Reduction Act. A letter sent to lawmakers highlighted the various tax provisions that are harmful to the small and family-owned business community, and points out that now is simply not the time to be raising taxes on these employers. The letter, which can be accessed by clicking here, reads:
The undersigned organizations represent millions of Main Street businesses and employ tens of millions of workers and we oppose the Senate-passed Inflation Reduction Act. Inflation is at 40-year highs, we have had two consecutive quarters of negative economic growth, and we are witnessing a shrinking small business sector, yet the Inflation Reduction Act does nothing to address these immediate issues even as it increases the burden of the tax code shouldered by America’s small and family-owned businesses.
The Biden Administration claims the savings in the IRA are “front-loaded” and will reduce the deficit in the short-term, helping to ease inflationary pressures. That is simply not the case. Recent analysis by the Congressional Budget Office, Penn-Wharton, and others shows the Inflation Reduction Act would increase prices in the short term and do little to bring them down in the long run.
At the same time, the bill would give the IRS an additional $80 billion in funding, more than half of which would pay for thousands of additional IRS agents to conduct millions of additional audits. We support addressing the tax gap and oppose illegal tax evasion, but as former National Taxpayer Advocate Nina Olson observed recently, it is wrong and counterproductive to characterize the entire tax gap as willful tax evasion. From experience, we know many, if not most, of these additional audits will be conducted on the owners of family businesses who have fully complied with the tax code.
Finally, the Warner Amendment adopted at the last minute presented the Senate with a clear choice between Wall Street and Main Street, and the Senate chose Wall Street. The amendment extends for two years the Section 461(l) cap on losses a business owner is permitted to claim. This $52 billion tax hike on pass-through businesses was adopted with almost no consideration, and the revenues it raises were used to offset the cost of exempting private equity investors from the fifteen-percent corporate minimum tax. The cap on active pass-through loss deductions is bad policy at any time, but it is particularly harmful when the economy is weak and an increasing number of businesses are suffering losses. The timing of this amendment’s adoption could not have been worse.
The Inflation Reduction Act would fail to reduce price pressures even as it raises the cost of the tax code to small and family-owned businesses at a time of economic weakness. We ask that you reject the IRA’s Main Street tax hike when it is considered by the full House
“The Main Street Employers Coalition – comprised of national trade groups representing individually and family-owned businesses employing millions of Americans in every state – believes the “Inflation Reduction Act” would fail to address the major challenges confronting Main Street today: high inflation, a slow economy, and a tight labor market.
“Recent NFIB member surveys make clear that inflation is the number one concern for Main Street businesses right now. With the CPI and PPI indexes measuring forty-year highs, businesses are struggling to balance rising prices with the need to accommodate their customers. A recent analysis from Penn-Wharton, however, finds the Inflation Reduction Act would increase prices in the short term and do little to bring them down in the long term.
“The legislation also provides the IRS with $80 billion in additional funding over the next decade. Its sponsors argue the funds will enable the agency to go after tax cheats and close the so-called tax gap, but Main Street knows better. More than half this funding will pay for new agents and increased audits, and the IRS has been transparent the primary target of these audits will be smaller private businesses. Meanwhile, only four percent of the funding will go to improving customer service, a long-term priority for Main Street.
“This is not a case where only tax cheats need to worry. Any business that has undergone an audit knows the cost and stress the process can impose on a business, even when no taxes are ultimately owed. The Tax Code is dense and ambiguous, so law-abiding businesses are at risk from this massive fishing expedition.
“Main Street faces numerous challenges in the current environment, but none of these are addressed in the Inflation Reduction Act. The bill will increase prices in the short term and increase the costs of complying with the Tax Code.”
The Main Street Employers Coalition joined with more than 190 business organizations, representing millions of Main Street businesses and tens of millions of American workers, to oppose Senate Democrats effort to raise tax rates on individually and family-owned businesses. The latest proposal includes a 3.8 percent tax rate hike on the active income of 1 million businesses struggling with high inflation and looming recession fears. The letter makes it clear: It’s a tax rate hike, not a loophole closer.
Expanding the 3.8 percent NIIT represents nothing more than an eleven percent increase in the rates imposed on family-owned businesses. Based on Treasury data, we estimate up to 1 million small and family-owned businesses, representing over half of all pass-through business activity, would be at risk of having their rates increased under this policy. This small business tax hike would hurt the ability of businesses that survived the worst global pandemic in a century to remain viable in the coming months.
Main Street Opposes Inflationary Tax Hikes on Individually & Family-Owned Businesses
“It’s the kind of thing you’d do to start a recession, not prevent one.”
WASHINGTON, D.C. (July 11, 2022) – The Main Street Employers Coalition—comprised of national trade groups representing individually and family-owned businesses employing millions of Americans in every state and district—released the following statement on a Democratic plan to raise tax rates on individually and family-owned businesses:
“We oppose Senate Democrats’ double-digit tax hike on the active business income of America’s individually & family-owned businesses,” said Chris Smith, Executive Director of the Main Street Employers Coalition. “These businesses already pay the highest effective tax rates, as well as payroll and self-employment taxes to Medicare. This tax rate increase would only make that disparity worse, add to inflation, and hasten a possible recession. It’s yet another ‘tax the rich’ smokescreen that ends up hitting Main Street instead.”
“Raising rates on small and family-owned businesses is the kind of thing you’d do to start a recession, not prevent one. Voters understand that if companies have to pay more in taxes, those costs will be passed on to consumers in the form of higher prices. Instead, we need to do everything we can to help businesses get back on their feet so they can get Americans back to work and the economy moving in the right direction.”
Our allies at the S Corporation Association recently held a webinar to highlight the results of its new national survey. David Winston, whose research and polling firm conducted the survey, was on hand to break down the results and explain how voters feel about inflation, the Build Back Better Act, the current state of the economy, and their potential impact on November’s elections.
As David made clear, the polling shows that Americans are well aware of the impact additional federal spending and tax hikes would have on inflation and are simply not on board with the Administration’s plans to increase taxes, particularly those on Main Street businesses.
The survey results and a recording of the webinar can be accessed via the links below:
Chris Smith, Executive Director of the Main Street Employers Coalition, recently joined the S Corporation Association’s Talking Taxes in a Truck podcast for a timely discussion about what effect the leaked Supreme Court draft decision will have on the tax policy outlook, and the odds of an overhauled Build Back Better Act being passed in the coming months. Chris and S-CORP President Brian Reardon also broke down the reconciliation bill’s various tax hikes, and explained how they specifically target family businesses.
The podcast is available here:
In an op-ed published in Roll Call today, David Winston of The Winston Group highlights a glaring disconnect between the goals of the Build Back Better Act and the priorities of everyday Americans.
The entire piece is worth a read, but the following paragraph perfectly summarizes why the BBB has stalled:
When asked which was the more important priority for the country, 66 percent said it was dealing with inflation and the scarcity of goods caused by supply chain problems, while only 25 percent picked passing Biden’s Build Back Better plan. Among independents, the gulf was even wider at 69 percent to 19 percent.
With inflation rising at a 40-year high, over 90 business groups called on Congress today to end efforts to pass Build Back Better and instead shift to the pressing issues confronting American families & businesses – rising prices, labor shortages & supply chain disruptions.
A copy of that letter can be downloaded by clicking here, and is below:
The undersigned business trade groups call on Congress and the Administration to end efforts to pass the multi-trillion-dollar tax increase included in the Build Back Better (BBB) bill and focus instead on the challenges confronting American families and businesses today – rising prices, labor shortages, and ongoing supply chain constraints.
Today’s Consumer Price Index report showing inflation rising at the fastest rate in forty years has our members understandably alarmed. Rapidly rising prices are a serious challenge to businesses of all sizes as they make purchasing inventory, supplies, and inputs such as heat and electricity more expensive. In many cases, our members are unable to pass these higher costs on to their customers. Some customers are unable to pay higher prices, while others are locked into long-term contracts that preclude price changes.
These challenges are amplified by today’s constrained labor markets. NFIB’s member surveys rank the ongoing worker shortage as the number one challenge employers face. When businesses do find suitable workers, they often need to offer them higher wages to entice them to come to work. In ordinary times, this would be good for the workers, but as we have seen in recent months, inflation eats away at these nominal pay increases and real wages are actually down this year.
The Administration argues that the Build Back Better bill will help to reduce prices, but those arguments are simply not credible. Our members believe the primary causes of the reemergence of inflation are the Federal Reserve’s continued easy money policies, massive amounts of deficit spending by Congress, and continued supply constraints, some tied to the Administration’s economic and Covid policies.
Raising taxes on America’s family businesses in this environment moves us in the wrong direction. Recent estimates show that more than $500 billion of the Build Back Better’s cost will be shouldered by family businesses and the bill would impose top rates on these businesses exceeding 50 percent. As with increased spending, voters believe these tax increases will be inflationary.
The Federal Reserve has recognized the challenge inflation poses to families and businesses and announced it will begin tapering its quantitative easing purchases in the coming months. Congress needs to make a similar adjustment, beginning by ending efforts to sharply increase federal spending while raising taxes on America’s employers.
Today, the Main Street Employers Coalition issued the following statement:
The Main Street Employers Coalition strongly opposes the House Democratic tax plan. The plan is nothing short of a declaration of war on individually and family owned businesses, and is the most anti-Main Street program ever proposed.
The tax hike would tilt the playing field even further in favor of large corporations on Wall Street and against Main Street America by increasing the tax rate on public corporations by just 5.5 percentage points, compared to the 16.8 percentage point increase that applies to individually- and family-owned businesses. Worse, it would apply these higher rates to a broader tax base. The impact cannot be overstated.
The individually- and family-owned businesses facing this draconian tax increase represent about half of all pass-through income, and they employ tens of millions of workers. Taxing these businesses while they are still struggling to recover from the COVID-19 pandemic goes too far. Raising their taxes will directly impact inflation and the cost of living, because if companies have to pay more in taxes, those costs will be passed on to consumers in higher prices & make it harder to raise wages for its employees.
Instead, we should be doing everything we can to help these businesses get back on their feet, so that they can get Americans back to work to keep the economy recovering and moving in the right direction. The Democratic tax plan goes in the opposite direction.
Yesterday, the Main Street Employers Coalition led more than 120 business trade associations in strong opposition to the Biden tax plan now being considered by Congress. Our letter makes clear that the proposals represent a direct assault on individually- and family-owned businesses by raising their taxes when they operate, when they are sold, and when they are passed on to the next generation. It also highlights the fact that the bill would violate the President’s pledge to not raise taxes on those making less than $400,000. The tax increases would directly harm the many individual and family business owners that make less than $400,000, including the 1.4 million private C corporation owners, family businesses with ownership shares held in trust, and entrepreneurs selling their business after a lifetime of work. With businesses still struggling to recover, Congress should avoid tax policies that harm Main Street—Enough is enough.
The full text of the letter is below:
Dear Chairman Neal:
The undersigned organizations representing millions of individually- and family-owned businesses strongly urge you to reject any measures that would raise taxes on Main Street employers as part of the upcoming reconciliation bill.
Individually- and family-owned businesses are the cornerstone of the American economy. They represent nearly all businesses, they employ the vast majority of private sector workers, and they are the building block upon which innumerable communities across this country are built.
The package of tax hikes being considered by the Biden administration and Congress represents a direct assault on these employers. Proposals to raise rates on pass-throughs and C corporations, cap the Section 199A deduction, increase the capital gains tax, and impose capital gains at death would raise taxes on Main Street businesses when they operate, when they are sold, and when they are passed on to the next generation.
This triple threat would lock in unprecedented levels of government spending and taxes that would handicap these businesses, and the communities that rely upon them, for decades to come. They would also violate the President’s pledge not to raise taxes on individuals making less than $400,000 a year. Many individual and family business owners that make less than $400,000, including the 1.4 million private C corporation owners, family businesses with ownership shares held in trust, and entrepreneurs selling their business after a lifetime of work, will be directly harmed by these tax increases.
As inflation and unemployment remain stubbornly high, Main Streets across the country remain boarded up, their businesses closed and their workers idle. Estimates suggest up to one-third of all private businesses have closed their doors during the COVID-19 lockdowns, with more joining them every day.
Congress should avoid tax policies that harm Main Street employers at any time, much less at this difficult moment in our nation’s history. The Biden tax hikes pose a triple threat to the ability of these individually- and family-owned businesses to survive an uncertain future, and we urge Congress to reject them.