If the Senate needs more reasons to drop the toxic Build Back Better Act, here’s a good one – job creation on Main Street has been negative over the past four months.  A recent piece in the Wall Street Journal detailed the struggles small employers face in the current job market:

Head counts at companies with fewer than 50 employees declined in three of the past four months, according to ADP payroll data, even as employment at larger firms continued to grow.

We highlighted this divergence several months ago, after the White House conveniently glossed over job losses at small firms while touting February’s overall jobs report.  Unfortunately, those numbers were not an aberration, with the most recent monthly figures showing small firms lost 91,000 jobs, while larger firms gained 229,000.

These job losses are not due to a lack of effort on the part of business owners.  According to the WSJ article, 63 percent of small-business owners say that hiring challenges are affecting their ability to operate at full capacity. These staffing gaps directly translate into lost opportunities, production backlogs, and decreased investment, allowing larger firms to swoop in and capture market share.

As a result, small-business confidence continues to fall: the survey found that just 9 percent of small-business owners expected U.S. economic conditions to improve over the next 12 months, down from 53 percent last June.

If small firms are struggling to find workers, why not just “pay them more,” as President Biden recently suggested? The WSJ spoke to several small business owners who poked holes in that logic:

Seventy-six percent of small-business owners said they had boosted wages in response to labor-market challenges, according to the Vistage survey, while 44% reported adding employee benefits.

Black Earth Compost, an organic-waste collection and compost-processing company in Manchester, Mass., with 78 employees, starts drivers at $18 an hour. Last year, the company began offering a $3-per-hour bonus to drivers who start on time, make all their pickups and deliveries and meet other performance targets. “That stopped the hemorrhaging, but it’s been tight ever since,” said owner Conor Miller.

And while the Biden administration has argued that new business applications are on the rise, a recent piece by Syracuse Professor Carl Schramm explains what’s really happening:

Washington’s touted “surge in entrepreneurship” is proving evanescent, however. Many individuals, facing economic lockdowns and the prospect of extended unemployment, decided to create businesses, often from home. Few of these companies will ever employ anyone except their founders — and rates of new business formation are already falling back to pre-pandemic levels.

Worse, the twenty-year trend of declining new firm foundation, year over year, continues to accelerate. Why? Because the administration’s economic policy has made starting a new business, always a challenge, even more difficult now.

Ongoing job losses at small firms highlight two important challenges.  First, the consolidation of economic power away from Main Street and into the hands of large, public companies has accelerated in the Covid and post-Covid economy. Small businesses have historically been the drivers of job creation and economic expansion, so this trend should be highly concerning to policy makers.

Second, the trend’s implications take on increased importance given the looming threat of a recession. While all businesses have been forced to grapple with rising prices and tight labor markets, larger firms are better equipped to weather an economic downturn given their larger scale, superior buying power, and integrated supply chain networks, as Domino’s Pizza’s CEO boasted on a recent earnings call.

What can policymakers do?  They can begin by recognizing that years of easy money coupled with the dramatic growth of tax-free investment pools means the cost of capital for public companies is just a fraction of what private companies pay.  Our tax policies magnify this disparity by imposing effective tax rates on public companies that are significantly lower than their privately-owned competition.

Addressing this disparity should begin with the Senate abandoning the Build Back Better Act for good. Family businesses are facing one of the most hostile economic and regulatory environments in recent memory. Yet lawmakers and the White House continue to push for tax hikes on the very businesses that can least afford them. Start helping them by stopping the pain.