The National Federation of Independent Business is one of the leading small business advocates in Washington. As part of their efforts, the NFIB analyzes budget proposals from both parties. In this commentary, the NFIB criticizes the Biden administration’s recently announced spending plans, which the group says amount to new taxes for small businesses.
Each year, the White House offers a new federal budget request to guide tax and spending decisions in Congress. The Biden administration released the fiscal year 2024 budget proposal last week, which includes tax increases that would further hurt small businesses. Main Street is already facing major challenges such as inflation, supply chain disruptions and labor shortages. Piling up additional taxes would make it harder for small businesses to hire, keep their doors open and plan for the future.
“The small business economy is still recovering and business prospects are near historic lows. The growing list of tax increases included in the proposed budget for fiscal year 2024 would crush Main Street’s ability to grow and create jobs,” said NFIB President Brad Close. “Some tax increases are wrongly labeled as closing a ‘loophole’ and would be on top of other rate hikes. The combination would directly hit small businesses as they navigate the ongoing economic headwinds. Instead, Congress and the administration should focus on policies that will provide certainty and promote economic growth to enable small businesses to create jobs and raise wages.
The budget restores the small business surtax, which proposes an additional tax on business income over $400,000. The small business surtax is something NFIB members have been fighting against throughout 2022 and it was eventually removed from the Inflation Reduction Act. The proposed new version would further increase the rate of tax increase from 3.8% to 5%.
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As Close said, the budget also incorrectly labels some tax increases as closing a “loophole” that would directly affect small businesses. Some argue that small business owners don’t pay Medicare taxes, but all employers pay Medicare taxes in the form of payroll taxes on their employees’ salaries and self-employment taxes on their own compensation. The new tax is based on the net tax on investment income, which was deliberately only applied to investment income when it was created in 2010.
The argument that it is only a tax on high income people is also false. For businesses organized as flow-through entities such as S corporations and partnerships, business income is included on a business owner’s individual IRS Form 1040. However, filing a Form 1040 as a business owner is different from filing a Form 1040 with your W-2, 1099, or other typical income. Business income and profits submitted on a Form 1040 are often funneled back into the business to operate, invest in benefits, hire in a tight labor market, expand a business, or saving for future challenges like a recession.
The NFIB has released a Small Business Growth Agenda for the 118th Congress, which features input from NFIB small business members on key issues and highlights legislative priorities that would benefit small businesses. The NFIB’s growth agenda includes specific pro-small business policy positions that warrant lawmakers’ consideration during this two-year session of Congress, including continuing to fight tax increases proposed by the White House.
