Biden White House's secret weapon on infrastructure: small businesses

(Reuters) – The Biden administration is seeking to leverage a secret weapon in its bid to get corporate America to pay for a sweeping jobs and infrastructure package: the nation’s some 30 million small businesses.

FILE PHOTO: U.S. President Joe Biden holds first Cabinet meeting at the White House in Washington, U.S., April 1, 2021. REUTERS/Tom Brenner/File Photo/File Photo

The White House’s effort, previously unreported, seeks to harness the political popularity of small businesses and the current agitation among them over a tax structure many view as generous to larger, billion-dollar corporations like Walmart Inc and Amazon.com Inc over Main Street establishments.

In doing so, the White House believes it has allies that will serve as an antidote to the large national trade groups – like the U.S. Chamber of Commerce and The Business Roundtable – who have come out in favor of infrastructure investment but strongly against President Joe Biden’s plan to raise the corporate tax rate from 21% to %28.

Biden is also seeking to limit the ability of American firms to avoid taxes by shifting profits overseas. Biden’s plan faces stiff opposition from Republican lawmakers who are more likely to dig in their heels than be swayed by small business sentiment.

Reuters has learned that in recent weeks, White House officials have held a spate of private briefings with small business leaders to explain Biden’s more than $2 trillion-dollar plan, which includes money for traditional infrastructure projects alongside addressing domestic policy priorities like climate change and racial equity.

‘LEVEL THE PLAYING FIELD’

On Tuesday, White House economic advisers and the head of the Small Business Administration, Isabel Guzman, joined thousands of local small business leaders on a call to detail the plan and field questions. The issue of tax fairness was a major theme.

“The Made in America tax plan will help level the playing field between small businesses and large multinational corporations, by ensuring that big corporations can’t escape or eliminate the taxes they owe by offshoring jobs and profits in the United States, and pay a lower tax rate than small businesses,” Isabel Guzman, administrator of the U.S. Small Business Administration, told business leaders on Tuesday.

Most small businesses are pass-through businesses like limited-liability organizations and S-corporations that don’t pay a corporate tax. Instead, the owners report business income and pay the tax on their personal tax returns.

Depending on the income, small business owners could pay anywhere from 10% to 37% on their income. Fortune 500 companies, on the other hand, paid an average rate of 11.3% in 2018, due to tax deductions and other measures that lower their tax liability, according to the Institute of Taxation and Economic Policy.

A White House official involved in the effort told Reuters that the “vast majority” of small businesses will be spared a tax increase under the president’s plan.

“Our message to them is you’re absolutely not going to be impacted by the additional taxes on large multi-national corporations, but what you will benefit from is all the programs,” the White House official said.

Michael Canty, President of Ohio-based Alloy Precision Technologies, says he will not be part of the vast majority spared from Biden’s tax plan. His manufacturing company employs roughly 85 people and is formed as a C-corp under the federal tax code and subject to the corporate tax rate.

He said the proposal amounts to a 33 percent increase is his company’s taxes and warned that it will make companies like his less competitive in the global marketplace.

“We have already started a hiring freeze. Between the tax increase and what we see as a tough regulatory environment, we have to prepare,” Canty said.

Frank Knapp owns a one-man public relations firm in South Carolina and is the co-chair of Small Business for America’s Future, which represents some 85,000 small businesses across the country. The group has polled its members routinely in the past few years and the results show the Republican tax cuts passed under President Donald Trump in 2017 were wildly unpopular with members who viewed them as a big giveaway to big businesses.

Recent polling by his organization shows 65% of members support increasing taxes on large corporations, Knapp says.

A recent Quinnipiac University poll showed that a plurality of Americans – 44% compared to 38% – support Biden’s plan. Support grows for the infrastructure plan if it is funded by raising taxes on corporations, with 53% supporting it and 39% opposed.

Knapp says he sees the role of his organization as debunking what he calls the myth that American businesses oppose raising the corporate tax rate. He says opposing lawmakers have already started to use the argument that the package would hurt small businesses and weaken employment in the nation’s largest sector.

“Our role is to step up and say, No, you’re absolutely wrong. Yes, we are the job creators, but we’re not going to be negatively impacted by this. We’re positively impacted and this is good for small businesses,” Knapp said.

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