FACT SHEET: The Build Back Better Agenda Will Provide Greater Tax Fairness for Small Businesses
Since day one in office, President Biden has focused on providing America’s small businesses with the tools and resources they need to reopen, rehire, and rebuild. To date, the Biden-Harris Administration has delivered more than $300 billion in relief to Main Street and is on track to fully forgive more than 6 million small business loans by year-end.
While Main Street is roaring back, many small businesses struggle to grow and compete globally due to a tax code that disproportionately benefits multinational corporations and a financial system that prevents millions of entrepreneurs from obtaining sufficient capital to start and expand operations. President Biden is committed to changing that.
President Biden’s Build Back Better Agenda will crack down on the unfair tax schemes that give big corporations a leg up. According to a new Treasury Department analysis, the President’s Agenda will protect 97 percent of small business owners from income tax rate increases, while delivering tax cuts to more than 3.9 million entrepreneurs.
The revenue raised from creating a fairer tax system for Main Street will help pay for investments that will grow our economy and create jobs, including investments in small business. This includes creating a national paid leave program with benefits paid by the federal government – not the employer – leveling the playing field for small businesses that cannot afford to provide this benefit to employees. The Build Back Better Agenda will also increase access to contracting opportunities and provide tens of billions of dollars in financing and technical assistance programs for small businesses, including small manufacturers. In short, President Biden’s plan lays the foundation for American small businesses to win the 21st century.
Specifically, President Biden’s Build Back Better Agenda will:
Level the playing field for small business owners by reforming the tax code
The current tax system unfairly prioritizes large multinational corporations over Main Street American small businesses. Small businesses don’t have access to the army of lawyers and accountants that allowed 55 profitable large corporations to avoid paying any federal corporate taxes in 2020, and they cannot shift profits into tax havens to avoid paying U.S. taxes like multinational corporations can. U.S. multinationals report 60 percent of their profits abroad in just seven low tax jurisdictions that, combined, make up less than 4 percent of global GDP. These corporations do not make money in these countries; they just report it there to take a huge tax. In 2018, married couples making about $150,000 working at their own small business paid over 20 percent of their income in federal income and self-employment taxes. By contrast, U.S. multinational corporations paid less than 10 percent in corporate income taxes on U.S. profits.
Facts about the current unfair tax system are unsettling, but they are no surprise to Main Street. Nearly three-quarters of small businesses say the current tax system favors big businesses over small businesses and that their business is harmed when big corporations use loopholes to avoid taxes. About two-thirds of small business support increasing taxes on corporations.
President Biden has laid out a comprehensive tax reform plan to level the playing field, address the concerns of small business owners, and raise revenue that will help pay for new programs for Main Street. The President’s plan will:
- Raise the corporate income tax rate to 28 percent;
- Strengthen the global minimum tax for large multinational corporations;
- Reduce incentives for foreign jurisdictions to maintain ultra-low corporate tax rates by encouraging global adoption of robust minimum taxes for large corporations;
- Enact a 15 percent minimum tax on book income of large, highly profitable corporations;
- Eliminate incentives for large corporations to offshore profits and jobs; and
- Ramp up enforcement to address tax avoidance among large corporations.
President Biden’s Build Back Better Agenda will make the tax code fairer while protecting millions of small businesses from tax increases. For example, President Biden’s proposal to restore the corporate tax rate halfway back to its pre-2018 level would not affect any small businesses that file taxes as a passthrough entity (LLCs, S-corps, and sole proprietorships). That’s nearly every small business in America. Similarly, the President’s proposal to restore the top income tax bracket to its pre-2018 level – which would only raise taxes by 2.6 percentage points for the wealthiest households in America – would affect less than 3 percent of small business owners, according to the Treasury Department’s new analysis focused exclusively on small businesses filing as S-corporations, partnerships, and on individual income tax return Form 1040 Schedules C, E and F (as noted, nearly every small business falls in this category). Across President Biden’s agenda, smart reforms to make America’s tax code fairer are tailored to protect Main Street small business owners from tax increases.
Give a tax cut to 3.9 million small business owners.
Not only will President Biden’s Build Back Better Agenda protect more than 97 percent of small business owners from income tax increases, it will also provide well-deserved tax cuts to Main Street entrepreneurs. These tax cuts will give more entrepreneurs the financial security and peace of mind they need to start or grow their own business. Specifically, the plan will:
- Cut taxes for small business owners with children. The American Rescue Plan (ARP) increased the Child Tax Credit (CTC) from $2,000 per child to $3,000 per child for children over six and $3,600 for children under six. The Build Back Better Agenda will extend the CTC expansion in the ARP, providing39 million households and the families of nearly 90 percent of American children a major tax cut and cutting child poverty nearly in half. New research from the Department of the Treasury shows that more than 3 million small business owners with children will benefit from these historic tax cuts.
- Cut taxes for small business owners who buy coverage through HealthCare.gov. Prior to the Affordable Care Act, small business owners and their employees were overrepresented among uninsured working Americans. Today, they represent more than half of all Americans enrolled in the ACA marketplaces. Earlier this year, the ARP provided tax credits that lowered health insurance premiums for those buying coverage through the ACA, saving families an average of $50 per person per month. Since the ARP went into effect, 34 percent of consumers have found coverage for $10 or less per month on HealthCare.gov. The Build Back Better Agenda will make these premium reductions permanent. As a result, nine million people – including more than 1.2 million small business owners – will continue to save hundreds of dollars per year on their premiums, and 4 million uninsured people will gain coverage. Not only will Build Back Better reduce health care costs for small businesses and their employees, it may give aspiring entrepreneurs the financial security and peace of mind they need to fulfill their dream of starting a business. And, Build Back Better will help small businesses who cannot afford to provide coverage to their employees compete against big corporations.
Help small businesses retain workers and compete against large corporations through a national, federally-funded paid leave program.
While the vast majority of small business owners believe it is important to establish a federal paid family and medical leave program, the U.S. remains one of the only countries in the world that does not provide it. As a result, nearly four out of five private sector workers – and 95 percent of the lowest wage workers – have no access to paid leave. This puts small businesses at a disadvantage when it comes to recruiting and retaining talented workers. Well-resourced large corporations can afford to offer their employees paid leave programs, but small business with fewer resources may have a harder time doing so. President Biden’s Build Back Better Agenda will level the playing field for those small businesses. It guarantees twelve weeks of paid parental, family, and personal illness/safe leave by year 10 of the program, and will ensure workers get three days of bereavement leave per year starting in year one. Importantly, under President Biden’s proposal, wage replacement would come from the federal government – not the employer – eliminating any potential burden on small businesses. According to a state-level study, 9 out of 10 employers experienced positive or no noticeable effects on productivity, profitability, turnover, and employee morale after a paid leave program was adopted.
Increase access to contracting, capital, technical assistance for small firms.
The President’s plan will increase access to federal contracts and invest in new financing and technical assistance programs that will directly benefit small businesses. Specifically, President Biden’s plan will:
- Increase federal contracting opportunities for small businesses. From upgrading Veterans Affairs medical centers to rehabilitating other federal buildings, the President’s plan will mobilize small contractors to meet the great challenges of our time.
- Launch a historic effort to empower small business creation and expansion in underserved communities. The Build Back Better Agenda will create a national network of incubators and business development centers to help more entrepreneurs start up new businesses, access government contracts, and expand their customer bases.
- Give small businesses – especially underserved small businesses – the tools to drive the innovation economy. President Biden is calling on Congress to invest in federal programs that empower small firms to participate in federal research and development initiatives that have the potential for commercialization.
- Help minority-owned manufacturing businesses access capital. The Build Back Better Agenda will create a new grant program through the Minority Business Development Agency that will help small, underserved manufacturers access private capital.
- Create a new financing facility for small manufacturers. President Biden is calling on Congress to seed a new program to co-invest with private capital in the industrial base.
- Increase access to lending and investment capital. The Build Back Better Agenda will enable small businesses to drive the recovery by injecting billions of dollars in funding into the Small Business Administration’s 7(a) loan program.
- Strengthen manufacturing supply chains and innovation ecosystems. President Biden is also calling on Congress to bolster the Manufacturing Extension Partnership and Manufacturing USA; create a new office to monitor industrial capacity and support the production of critical goods; and establish regional hubs to fuel technology development and create new businesses.