How the Biden Administration Will Affect Small Businesses
Small businesses will feel the impact of changes made by the Biden administration, as well as those that come after four years of a Trump presidency.
Biden has indicated that he is on board with doubling the national minimum wage from $7.25 per hour to $15. This will have an immediate impact on small businesses that struggle to turn a profit, especially in an economy that hasn’t fully recovered. Large corporate entities like Amazon and Target are able to invest in automation to replace hourly workers. In contrast, small business owners must either raise prices or save on costs by cutting staff and doing more work with less help. Even an exemption for small businesses will mean difficulty competing for talented employees. A minimum wage increase will increase costs throughout the supply chain for goods manufactured in the U.S., which means small businesses will have to raise their prices regardless of their local employment situations. The best case for small businesses in this daunting scenario is if Biden chooses a progressive increase to $15 over several years.
Biden has indicated he will reverse many of Trump’s policies in the same way that Trump reversed Obama’s when he took office. According to the National Small Business Association (NSBA) survey, many small business owners invest at least 80 hours and $83,000 per year complying with regulations. Trump rolled back more than 1,500 regulations during his presidency. So, small businesses that may have benefited from those rollbacks should plan for their reinstatement. In addition, the Tax Cuts and Jobs Act of 2017 (TCJA) included a pass-through business deduction that likely benefited small businesses with revenues in excess of $300,000. On the other hand, the Trump administration reduced or eliminated many tax deductions that benefited small businesses. Businesses may have less of a burden if Biden reinstates all business interest deductions, entertainment expenses, child care credits, and other deductions.
California instituted the ABC test to determine whether a person is an employee or an independent contractor. Additionally, other states are instituting similar policies that Biden may support at the federal level. With these policies in place, small businesses may begin to do more business with other entities, such as staffing agencies, rather than working directly with individuals that might be considered employees. In addition, on-demand models like Uber could face greater obstacles that require them to lay off a large number of part-time drivers in order to allocate budget to a smaller number of full time employees.
On the positive side, businesses with employees have had access to forgivable Small Business Association Paycheck Protection Program (SBA PPP) loans. The intent is to ease the burden created by lockdowns across the country. It’s unlikely that Biden would take this benefit away for small businesses. It is also possible that workers who do earn higher wages will spend more. This could potentially stimulate the economy back to the low levels of unemployment and high GDP that we saw prior to COVID-19.