The Main Street business community today sent a letter to lawmakers with a simple message: many of the proposed tax policies in the Inflation Reduction Act would harm individually and family-owned businesses and should be rejected.
The letter was signed by more than 70 trade associations representing millions of Main Street businesses from every corner of the country and every sector of the economy, including NFIB, the National Restaurant Association, the Associated Builders and Contractors, the National Association of Homebuilders, and others. It makes clear that the Inflation Reduction Act, which the House is expected to take up this week, falls well short of its intended purpose:
Inflation is at 40-year highs, we have had two consecutive quarters of negative economic growth, and we are witnessing a shrinking small business sector, yet the Inflation Reduction Act does nothing to address these immediate issues even as it increases the burden of the tax code shouldered by America’s small and family-owned businesses.
The Biden Administration claims the savings in the IRA are “front-loaded” and will reduce the deficit in the short-term, helping to ease inflationary pressures. That is simply not the case. Recent analysis by the Congressional Budget Office, Penn-Wharton, and others shows the Inflation Reduction Act would increase prices in the short term and do little to bring them down in the long run.
At the same time, the bill would give the IRS an additional $80 billion in funding, more than half of which would pay for thousands of additional IRS agents to conduct millions of additional audits. We support addressing the tax gap and oppose illegal tax evasion, but as former National Taxpayer Advocate Nina Olson observed recently, it is wrong and counterproductive to characterize the entire tax gap as willful tax evasion. From experience, we know many, if not most, of these additional audits will be conducted on the owners of family businesses who have fully complied with the tax code.
The letter also addresses the last-minute adoption of the Warner amendment, and how it chose to protect private equity investors at the expense of the small business sector.
Finally, the Warner Amendment adopted at the last minute presented the Senate with a clear choice between Wall Street and Main Street, and the Senate chose Wall Street. The amendment extends for two years the Section 461(l) cap on losses a business owner is permitted to claim. This $52 billion tax hike on pass-through businesses was adopted with almost no consideration, and the revenues it raises were used to offset the cost of exempting private equity investors from the fifteen-percent corporate minimum tax. The cap on active pass-through loss deductions is bad policy at any time, but it is particularly harmful when the economy is weak and an increasing number of businesses are suffering losses. The timing of this amendment’s adoption could not have been worse.
The Inflation Reduction Act fails to combat inflation while simultaneously raising the tax burden on small and family-owned businesses. The IRA is the last thing our country’s struggling Main Streets need right now; it’s time for lawmakers to abandon these policies and focus instead on the priorities of Main Street employers.