There is no need to repeat the obvious. 2020 has been a year full of challenges for small businesses and so many were afraidabout their survival. Many small businesses in the frum communities were on a constant roller coaster, never being sure whether or when they would be allowed to open. An owner of a small electronics store who has been in business for 26 years confided in me that he had nightmares of whether he would be able to pay his bills, including feeding his family. He said that each morning he would rush to get the news to see whether he could open. “It’s been an absolute nightmare,” he said. His two employees just returned after a long layoff and he was hoping to be able to open full time.
Some small businesses made it throughthe Covid months with the help of the federal Payroll Protection Program (PPP) while others dipped into savings. Recent news reports revealed that a substantial number of businesses were forced to close despite the PPP’s.
Now comes the latest challenge, the apparent change in our government and once again there is growing angst amongst small businessmen about their future. “Will a Biden administration deliver more stimulus grants?” “Will the President-elect stick to his campaign promise of turning the program into grants, instead of loans?”
One suggestion that made the rounds during the campaign actually relates to getting the Federal Reserve involved to help small businesses. It had launched a $600 billion program to help mid-size companies recover through lower-interest loans. As of the end of the summer, only a tiny fraction (0.07%) of those funds were used. While these funds are allocated differently than the PPP and other funds, perhaps some of these massive funds could be utilized to help Main Street instead of Wall Street. Will a new administration endorse such a plan?
The next hurdle is the implication of the Biden platform. While he ostensibly campaigned on the theme of raising taxes for big business, he said virtually nothing about his plans to help small business with the exception of some lip service of how important they are to the American economy. In fact, in a speech in Las Vegas, he said: “No, taxes on small businesses will not go up.” If he sticks to that promise, at least there will be some relief from the tax side.
On the plus side, a promised shakeup of the popular401(K) retirement plan may help many small businesses keep good employees who would be more likely to stay with an improvedretirement plan. Instead of allowing contributions to be deducted from income, people would be eligible for a refundable tax credit. One thing that the experts agreed upon during the campaign is that people working at small businesses are not saving for their retirement as much as they should and small businesses – who employ more than 50% of the country’s workers – are not doing enough to motivate them.Just half of US households have retirement accounts, according to a study from the Federal Reserve and new data from the Employment Benefit Research Institute.
A major theme of the Biden-Harris candidacy was rebuilding the middle class. But how? Taxing corporate America won’t see a distribution of the wealth to small business. In other words, although the President-Elect touted his oft-promised heavy tax on the big corporations, he never outlined how that would help Middle America or small business.
Another case in point is his promise to raise the minimum wage to $15 an hour. Who but small business will pay the price for the increase?According to one study from the non-partisan Congressional Budget Office, a $15 minimum wage would cost 1.3 million jobs, as employers struggle to afford the higher wage floor. They are likely to shed employees if they are forced to pay the higher minimum wage. Biden is also a proponent of mandated paid time off, another government requirement that increases labor costs.
The uncertainty is causing many small businesses to consider selling their companies. My firm, Lubicom. Has had a significant uptick in businesses listed for sale. Some businessmen voiced yet another concern. They are concerned with Biden’s proposal to increase the capital gains tax rate from the existing 20 percent level up to individual rates as high as 39.6 percent once someone is earning more than $1 million per year. Selling a company triggers a capital gain for a business owner and obviously the higher rate, the less taken home after the transaction, so selling sooner rather than later would be the right move for many.
Yet another concern is Biden’s proposal to impose the 12.4 percent Social Security payroll tax for wages above $400,000 (it’s currently $137,700), raise the corporate income tax rate from 21 percent to 28 percent and phase out the “small business tax deduction” on pass-through earnings (otherwise known as the qualified business income deduction or Section 199A) for filers with taxable income above $400,000.
There is much for small businesses to worry about in the coming months. Not only do they have to win back their customers or clients, they have to keep their ear to the ground in terms of regulations that relate to Covid, and worry about systemic changes that will significantly raise their overhead. An increased minimum wage and a jump in social security payroll tax, for example, would most likely throw the viability of many small businesses. Many small business entrepreneurs have already made major modifications in their business plan. Some have opted to make a smaller print, downsizing where possible. Others have moved to lower their overhead for rent and other space related expenses to an on-line presence.
Small business will also be carefully watching the implications of trade deals, relations with China, the US participation in the Climate Accords amongst other things. Each of these has the possibility of severely impacting our small business community. Retailers that rely on imports will be carefully monitoring the evolving US relationships, particularly with countries like China. Also, on the watch list will be the price of fuel which has huge implications formanufacturing and even shipping.
There is every reason to believe that most of the gains made during a Trump administration will remain in place, especially with aRepublican dominated Senate (if it should come to pass) and a conservative Supreme Court. But there will still be a vigil as to Presidential Executive Orders and some initiatives that will squeak through Congress, even if it proves to be dysfunctional. In past recessions and government changes, small business has proven to be resilient, but with all that is happening nowadays, including Covid, all bets are off.