As the world watches the U.S. democracy in action, small-business owners at home have a lot at stake at all levels of government. A global pandemic has created a faltering economy with countless business closures and record unemployment. As racial tensions rise and more shut-downs loom with a second or third wave, it is important to understand how elections directly affect small businesses, regardless of the outcome.
Many small-business owners already believe that the winner of the 2020 presidential election will impact them directly. A recent survey by Verizon found 81% say the election outcome will impact their businesses, while 57% say it will impact their financial security. This is irrespective of which way the small-business owner plans to vote.
Small-business owners have directly seen the power elected officials have over our public health, economic recovery and tax regulations. Now, looking forward, what is at stake for small businesses?
Here are four key issues the incoming administration will need to face:
Vaccine? Working and Living with COVID.
The same Verizon survey showed 55% of businesses are concerned about staying afloat financially with social distancing regulations that limit business capacity. As a coronavirus vaccine nears final stages, public health officials across the U.S. are hastily preparing to distribute it and no one really knows when it will be cleared by the FDA or paid for by state leaders. Until then, small-business owners will have to do their best to help prevent the spread by following CDC guidelines and get creative with employee well-being amidst the pandemic.
More Stimulus? Financial Aid Is Running Dry.
As of the date of this article, which happens to be election night, negotiations for economic relief have been stalled for weeks with no end in sight. The CARES Act aid is fading and countless small businesses have not been able to recover as quickly or at all. COVID-19 cases are on the rise and the U.S. has record unemployment, pushing 8 million Americans to poverty. COVID-19 has forced businesses to pivot by investing in new technology, relying on remote workers and looking at other business opportunities. Both parties agree to some form of relief and that it is needed; the question becomes what does that look like and when will it be ready?
PPP Forgiveness. Is There a Finish Line?
The incoming administration will also play a role in how the current Paycheck Protection Program forgiveness procedures will work. Overall, the PPP was a bit of a challenge to fill out, with 11 pages of Frequently Asked Questions, 26 Interim Final Rules (the latest of which came out on Oct. 19th) and banks taking different approaches to forgiveness. New EZ forms were created to prevent confusion, but allegations of widespread fraud with EIDLs surpassed $14 billion.
According to the SBA, it only received 96,000 forgiveness applications as of October, making that only 2% of the 5.2 million loans issued. Last month, none of the applications had been forgiven, although the SBA said it finally began sending forgiveness payments out on October 2. The incoming administration could follow previous proposals to forgive loans under $150,000 by simply signing a certification. Data from the SBA also shows that there are more than 4.5 million loans that fall within that category, which is 87% of all loans. Borrowers, lenders and the SBA would all benefit by simplifying how these loans are processed but, given the uncertainty, it may be more efficient to wait to apply for loan forgiveness for now.
New Tax Plans. Very Different Worlds.
Every administration takes a crack at tax policies, and the new administration could enact new ones that would affect small businesses. Former Vice President Biden has proposed several tax changes to include:
- Raising the corporate income tax rate to 28% as opposed to the current 21%.
- Phasing out the Qualified Business Income Deduction (Section 199A) for filers with taxable income above $400,000. (An income threshold already applies to many pass-through business owners.)
- Increasing the capital gains rate to 39.6% for investment income above $1M.
- Imposing a 12.4% payroll tax on income above $400,000.
- A credit for small businesses that provides retirement plans for their employees.
- An expansion of the existing premium tax credit that makes state-sponsored health plans more affordable.
The Trump campaign has outlined an agenda for tax proposals but has not offered many specific proposals. Regardless, even existing programs contain issues that will still need to be resolved by next tax season, including:
- What is going to happen to deductibility of expenses paid with PPP loan funds? Forgiven loan funds were intended to be non-taxable. However, the IRS has not clarified this, leaving some expenses taxable and creating discrepancies with payroll payments.
- What is going to be the treatment of the payroll tax deferral? The payroll tax suspension has been in effect since September 1 and lasts through the end of the year. This was a deferral, not a tax cut, meaning the taxes will still need to be paid by 2021. Trump has promised to push for these deferred taxes be completely forgiven if he gets re-elected.
- Are the 2017 Tax cuts permanent? The Tax Cuts and Jobs Act (TCJA) passed in 2017 has many key provisions that will expire in 2025, including the Qualified Business Income Deduction mentioned above. Whether or not these become permanent will be a significant issue for small businesses.
No doubt there is a lot of pressure to go around at many levels of our society, but small-business owners can have a positive influence beyond the results of the election. It is important to engage with local city councils, regulation boards, corporation commissioners, economic offices, lawmakers and leaders. We all benefit from an active role in democracy — emphasis on the word “active.”
EDGAR RAFAEL OLIVO is a bilingual business educator, economic advisor and contributor for several media outlets. He’s a nonprofit executive who is passionate about education. He is certified in finance and data analytics and holds a business degree from Arizona State University.
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