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The worst time to consider raising taxes on small businesses

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SMEs are weathering a difficult situation as inflation concerns skyrocket and labor and supply shortages are unlikely to be resolved anytime soon. more difficult Now than in the height of the pandemic shutdown.

However, at a time when small businesses face significant challenges, recent legislative proposals include provisions to tax pass-through entities such as S corporations, partnerships and limited liability companies (LLCs). All of these types of businesses are small businesses.

State of play: Inflation Continues to Rise Highest speed since November 1981prices rose 9.1% on an annual basis in June.

According to the latest U.S. Chamber of Commerce and MetLife small business index88% of small business owners are concerned about the impact inflation will have on their business, and supply chain disruptions remain a challenge.

fact: To fund the new Adjusted Spending Plan, some in Congress recently proposed a new tax of 3.8% for pass-through businesses. This is also known as the small business surcharge. It was mischaracterized as plugging a “loophole” to help fund Medicare, and could have devastating effects at a time when Main Street can’t fund it.

The U.S. Chamber of Commerce Joined a Coalition of Organizations send a letter To House and Senate leaders who oppose small business tax increases.

Proposals to tax pass-through entities to cover the costs of the settlement did not move forward. However, the agreed transaction includes other taxes. discourage investment and undermine economic growth— exacerbate our economic problems.

The deal includes an increase in taxes on carry interest, a portion of investment income paid to investment managers in private equity and venture capital firms. Small businesses rely on private equity to grow, and this clause will whet your appetite and scare some investors away from investing in small businesses.

plus, Fundamental misconceptions about small business finance can lead to proposed tax increases for pass-through entities (small businesses).

yes and: The additional tax will reduce the cash reserves required by small businesses. Personal reserves are the biggest source of funding for entrepreneurs when they face financial difficulties. Score.

In an era of tight credit and rising interest rates, personal reserves will become even more vital to the survival of small businesses.

Stephanie Sims, a member of the U.S. Chamber of Commerce Small Business Committee and founder of Finance Ability, explained more about the implications of taxing small businesses in a recent letter to Arizona Senators Krysten Sinema and Mark Kelly. doing. Read the full letter.

What else is at risk: Raising taxes on small business profits ignores the reality that small business owners reinvest their profits back into their businesses and communities, Sims writes.

Punishing small business owners who have wisely amassed cash reserves to face financial hardship during difficult times not only harms those individuals and their families, but also puts current employees and potential employers at risk. It puts new hires at risk.

To the point: At worst, tax increases on S corps and other small business pass-through entities will hurt the growth of entrepreneurs and small businesses.

About the author

Thomas M. Sullivan

Vice President, Small Business Policy, U.S. Chamber of Commerce

Thomas M. Sullivan is Vice President of Small Business Policy for the US Chamber of Commerce. Working with the Chamber of Commerce and the national network of U.S. Chambers of Commerce, Sullivan harnesses the small business perspective and applies its grassroots power to federal policies that strengthen free enterprise and reward entrepreneurship. Convert.he runs the United States

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