House Democrats' tax plan is a disaster. Here's how it would punish small businesses.

·3 min read

Talk about awkward.

As usual, the White House offered platitudes this month at the start of Small Business Week. Small businesses are the “engines of our economic progress.” The “pillars of their neighborhoods.” And so on.

But a few days later, the House of Representatives, with the White House’s backing, announced one of the most dramatic assaults on small business in decades. Lawmakers unveiled a massive tax-hike package that would jam those “engines of our economic progress” and topple many of those “pillars of their neighborhoods.”

In Washington, D.C, words are meaningless – it's actions that matter. And these actions, if enacted, would be a disaster.

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The tax hikes would fund a massive $3.5 trillion expansion of the federal government, but they couldn’t come at a worse time for small businesses. You’d think the White House would know this. After all, in its proclamation for Small Business Week, the administration noted that the pandemic hit small businesses hard.

That’s an understatement. Most small businesses spent 18 months struggling to survive the pandemic and government-mandated shutdowns.

Pandemic still hurts businesses

Washington’s response has often made it harder, most notably leading to huge numbers of unfilled jobs. Add floundering supply chains and it’s painfully clear: The answer to these problems is not a massive revenue grab by the federal government.

How are small businesses supposed to bounce back stronger if Washington taxes them back into the 1970s?

Small businesses aren’t just looking at one or two tax hikes under the proposed plan. They’re looking at a slew of tax increases that would hit them from every angle:

The small business deduction would be capped. This game-changing policy gives small businesses unprecedented relief. But now Congress wants to limit eligibility, hurting small businesses that invest in jobs and equipment.

Estate taxes would be raised. The current exemption would be cut in half, exposing more small businesses and family farms to huge tax bills when loved ones pass away. Some may be forced to liquidate to pay it.

►Capital gains taxes would be raised. The hike, from 23.8% to 28.8%, would mean less money to invest in the business, to offer wage hikes to workers and to give back to communities.

►Small business income taxes would be raised. There’s a 3.8% surtax specifically targeted at small businesses. It’s a clear-cut attempt to take more money from the businesses that can least afford it.

The top income tax rate, with the 3.8% net investment income surtax and the 3% surtax on high earners added, would hit 46.4%. Yet most small businesses use personal income as the primary source of business investment. Now they’d have less of it, and they’d pay those higher taxes on more of their income, since the rate would kick in at a lower threshold.

Federal mandates also target businesses

These tax hikes are bad enough, promising job losses and shuttered stores across the nation. But the White House and Congress also want to raise costs on small businesses in other painful ways.

Case in point: The $3.5 trillion House bill would mandate that all businesses with five or more employees auto-enroll them in a retirement plan. A third of small employers offer a retirement plan.

But Congress has a simple solution – force the rest to do it anyway! Never mind the consequences, which wouldn’t be that different from the tax hikes.

If these tax hikes and mandates go through, the damage will be severe and long-lasting. The country may recover in time, but countless small businesses won’t live to see it.

It wasn’t just wrong to roll out these tax hikes and mandates around Small Business Week. It’s wrong to consider them anytime. And it’s right to defeat them – immediately and permanently.

Brad Close is president of the National Federation of Independent Business.

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This article originally appeared on USA TODAY: Democrats' tax plan: Why it would be a disaster for small businesses

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