How Congress can help Main Street fight inflation
Washington needs to pass real solutions to inflation or get out of the way
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Main Street is reeling from inflation. Washington just announced that prices are 8.6 percent higher compared to this time last year – a new 41-year record. For small businesses nationwide, that means dire economic headwinds for the foreseeable future. Soaring costs and the related supply chain difficulties are making it so much harder for the engine of the American economy to get into higher gear.
At NFIB, small businesses are telling us daily that inflation is hurting them, and our May Jobs Report showed that inflation is small business owners’ biggest concern. No wonder: Inflation stops them from creating jobs, giving back to their communities, and planning for the future.
Small businesses are counting on Washington to help address this crisis, but instead of solutions, all they hear are bad ideas that will make current problems even worse. Congress and the Administration are still pushing the Build Back Better Act legislation, with its massive tax increases that would take more money that small businesses need to grapple with high inflation and supply chain bottlenecks.
Only in Washington does it make sense to saddle the small business economy with new taxes and mandates. What’s really needed are policies that would grow and strengthen Main Street. If Congress doesn’t have any good ideas, they should look to the states for pro-growth solutions.
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In Virginia, small businesses got tax relief. Small businesses got new deductions related to the pain caused by the pandemic. They also got bigger income tax deductions, which matters because most small business owners file as individuals. This makes inflation a little bit easier to deal with on Main Street.
In Minnesota, small businesses have been saved from devastating tax hikes. The governor recently signed legislation that puts $2.7 billion into the state unemployment trust fund, putting it back in the black. Without this action, the state would have had to take more money from Main Street to refill its coffers. Instead, small businesses get to keep that money to deal with inflation.
In Mississippi, Main Street got tax cuts. A new law cuts the state’s five percent income tax bracket down to four percent in the next few years. It also eliminates taxes on the first $36,600 income for joint filers and on the first $18,300 for single filers. This common-sense tax reform legislation allows small business owners to reinvest more in the business, which helps a lot when inflation is high. It also lets employees keep more of their money, which matters a lot when prices are spiking.
Plenty of other states are taking real steps to support Main Street. More than a dozen have introduced legislation that would either phase out or reduce taxes. As more of these policies become law, small businesses will be in a much better position to deal with the economic headwinds hitting them from every angle.
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But states don’t have to be the only ones to act. If Congress wants to help small businesses (along with their employees and the communities they anchor) then lawmakers should immediately pass S. 480 and H.R. 1381, the Main Street Tax Certainty Act. It would permanently extend the Small Business Deduction (Section 199A), which gives about three-fourths of Main Street a 20 percent tax deduction. This policy is a critical part of aligning small businesses with big corporations when it comes to tax relief. But it’s set to expire in 2025.
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That means small businesses are facing a massive tax hike – and the current inflation crisis makes it that much harder to prepare. By making the Small Business Deduction permanent, Congress would send a message that small businesses don’t have to worry about a tax hike that would add insult to the injury of inflation.
What Congress should do is really quite simple: Pass common-sense solutions or get out of the way. It’s the proven way to let small business owners do what they do best – create jobs, grow the economy, and help their local communities thrive. Inflation is making that hard to do. The least Washington could do is not make things even harder for Main Street.
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Brad Close is president of the National Federation of Independent Business.