Legislative Proposals Small Businesses Should Worry About in 2023
Small business owners should be keeping an eye on the current 118th Congress. While it’s only a month old, there are several pieces of legislation and proposals that could have wide-ranging impacts on small- and medium-size businesses should they pass, and issues such as manufacturing costs, tax breaks and whether a popular government grant program survives could all be in play in 2023.
So as the year progresses, here are the legislative issues small business owners should keep on their radar screens.
Made in America
“Tonight I am announcing that all construction materials used for federal infrastructure projects to be made in America,” said President Biden during his State of the Union Address on February 7. While “Made in America” is always a great talking point for a politician, it really isn’t feasible for small construction companies and contractors to execute without ballooning the costs of construction projects.
The 2022 Infrastructure Investment and Jobs Act (IIJA) included the Build America Buy America provision that currently requires that only 55% of the materials used by a contractor for a federal project be made in America. If Biden’s statement comes to fruition, it would cause considerable difficulty for independent contractors and small construction firms to stay on budget if they win a federal construction contract.
Patriotism is always appealing of course, but according to Construction Dive, a news site for contractors, forcing contractors to use 100% American-made supplies could raise project costs by 25% on average.
The reason for this is that the most vital construction materials such as lumber, steel, copper, aluminum and cement, are all imported from countries in Asia, South America and Canada. Those offer those materials at a far lower cost due to lower labor costs.
STEP Renewal Act
This bill, introduced by Sen. Jeanne Shaheen (D-NH), would renew the popular State Trade Expansion Program (STEP) and would direct the SBA, which administers millions of dollars in STEP grants through local and affiliate offices every year, to make it easier for small businesses to apply for these grants. With a Republican-controlled House that wants to cut federal spending, there could be a partisan showdown on whether the STEP grant program gets renewed.
Since 2011, the SBA has administered millions of dollars in grant money to small businesses starting out or expanding into the import/export business through its State Trade Expansion Program (STEP) grant program. In the past 12 years, the agency has awarded over $200 million through state and affiliate offices to support US small businesses in learning to export products, participating in foreign trade missions and designing international marketing campaigns, among other activities related to international trade.
Easier to Obtain Microloans?
In late January the House unanimously passed HR 1487, the Microloan Transparency and Accountability Act, sponsored by Rep. Tim Burchet (R-TN). The bill is designed to ensure that the funding for the microloan program is, in fact, being disbursed to small businesses in underserved and rural communities as it was intended to through greater oversight of the SBA.
The Microloan is one of the most popular lending programs that the SBA offers. These loans have far less restrictive lending requirements, are one of the few SBA lending programs that can help fund startup businesses, and are crucial to small businesses in rural and low-income communities.
The bill, if passed, would offer 5% technical assistance grants to the program’s affiliate lenders if they lend to businesses in rural communities, and would require them to make at least 25% of their lending funds to rural businesses to qualify for the 5% grant. It would also require the SBA to produce an annual report on the number of loans that have defaulted as well as the number of loans made to small businesses in rural areas.
As part of the Infrastructure Investments and Jobs Act (IIJA), the Internal Revenue Service was given
more funding to conduct additional audits on companies and individuals that produce $400,000 or more in gross annual income, with the idea that this would increase tax revenue by forcing multi-billion dollar corporations and wealthy individuals to pay more in taxes.
In January, HR 23 was introduced in the House to rescind that additional funding – a move adamantly opposed by the Biden Administration, which insists that the additional audits would only affect large companies and the country’s ultra-wealthy elites.
In reality, $400,000 or more in gross annual income for a pass through business would likely make the small business owner financially well off, but it certainly wouldn’t make the business owner ultra wealthy. Once parcel out payroll, taxes, inventory purchases and other expenses are all parceled out, a small business owner would be left with far less than $400,000. If the IIJA provision is kept, it would mean a higher tax rate and further audits of high margin small businesses such as law and accounting firms and doctors offices, so one can expect a showdown between House Republicans and the Biden Administration over this bill.
Easier to Unionize?
President Biden, as expected, made a plea to Congress to pass the Protecting the Right to Organize (PRO) Act during his SOTU address, which would make it easier for workers in any business to organize and form unions. Of course, Democrats and Republicans have always been far apart when it comes to supporting unions, but the issue has garnered far more attention in the past two years due to the tightening labor market and highly publicized unionization attempts by workers at large companies such as Starbucks and Amazon.
This obviously affects small businesses that are already feeling the brunt of the labor shortage and rising wages. More unions would ultimately lead to rising labor costs that some small businesses would have a difficult time being able to afford.
Should the Tax Credit Stay?
One issue that has concerned small business trade groups such as the National Federation of Independent Businesses (NFIB) is the possible sunsetting of the Qualified Business Income (QBI) tax credit, which was created by the Tax Cuts and Jobs Act (TCJA) of 2018. Shortly after taking office, President Biden promised to rescind elements of the TCJA to ensure that large corporations and the wealthy pay their share of taxes.
While Biden did later say that he was not considering eliminating the QBI deduction, it is scheduled to sunset in 2025. The NFIB continues to actively lobby to make the deduction permanent, as it claims many small businesses have come to rely on that deduction to stay afloat amid the myriad of economic challenges they are currently facing. President Biden has not commented on this deduction in the past year, but if he does indicate a move to eliminate it, it would set up a showdown between him and the GOP.
The QBI deduction allows eligible self-employed and small-business owners to deduct up to 20% of their qualified business income on their taxes. In general, total taxable income in 2022 must be under $170,050 for single filers or $340,100 for joint filers to qualify.
All-in-all, while the Biden Administration has made progress in passing bi-partisan legislation to reduce inflation and rebuilding the nation’s infrastructure, we can probably expect more gridlock over the next two years with Republicans controlling the House.