Small businesses, which still account for nearly half of our country’s economic output, are the backbone of our economy. They are hurting now like never before. This problem started well before COVID-19. Anyone who has driven down the main street of any small town in America has seen the boarded-up storefronts and the for-sale signs. This doesn’t just hurt the business owners; it devastates communities. COVID-19 took this ongoing problem and drove it to a crisis level. Between Jan. 1, 2020, and Dec. 31, 2020, about 30% of U.S. small businesses closed, while total small-business revenue decreased by 31%, according to Economic Tracker. During the same period, the stock market boomed, and multinational corporations continued to thrive.
The demise of the small-business sector and the gutting of so many of our communities have played a huge role in the political unrest we have in America. To fix the problem, those in power — who have thrived the past few years — must think deeply about the fundamental unsustainability of the growing chasm between huge, multinational businesses and the rest of America.
You would think this problem would be at the top of the Washington agenda, but it’s barely discussed. That’s because big business bought a monopoly on the Washington conversation a long time ago. We don’t have a lot of corruption in the “grease the congressman with a bag of cash” sense — although we have had some of that. What we have is actually harder to fix. We have a culture so thoroughly dominated by a big-business perspective that even today, after all the turmoil the country has been through, there is little self-reflection on how we could change Washington to benefit more of our fellow citizens.
Huge, multinational companies open offices in Washington with the express purpose of shaping the policy agenda. They also fund the trade associations, lobby shops, public relations firms and news publications that dominate our capital. A majority of departing members of Congress now go to work in this booming influence industry. The result is a corporate culture in Washington closely attuned to a big-business worldview, increasingly out of touch with anything else.
What we need now more than ever is a Main Street policy agenda in Washington. What would this agenda look like? Here’s a start:
There is a sound free market argument against minimum wage regulations. In the absence of regulation, wages would be set by the market, based on the supply and demand of labor in a given field. Artificial constraints on this market can lead to fewer jobs, and artificial increases in automation can reduce labor demand. However, if we are going to have a minimum wage, why should it be the same for all businesses and in all places?
The cost of living in New York City or San Francisco is double that of many small towns. Similarly, giving small businesses more wage flexibility than multinational corporations with billions in profits makes sense. Why should a deli owner in a small town who needs help for a few hours a day at the cash register face the same minimum wage as Goldman Sachs? Nobody thinks this makes sense, but it’s not even debated in Washington.
Of course, huge companies such as Amazon, Target and Walmart support President Joe Biden’s proposal to increase the federal minimum wage to $15. Many of those companies already pay a $15 minimum wage. Hiking the national minimum won’t hurt them. In fact, they will benefit from the added drag to their small-business competition. There’s an easy solution here, but you won’t hear it mentioned in Washington. Why not a progressive minimum wage pegged to the local cost of living and the size of the company in question? It’s not too much to expect Amazon or Walmart to pay employees a livable wage, so maybe they should be at $20 or more, and small businesses, on the other hand, could be at a lower level.
Why do we have a progressive tax code for individuals but a flat tax for corporations, regardless of size? In fact, we have a regressive tax structure for business. Most very small businesses operate as limited liability companies, meaning their income is passed through to the owners and then taxed at individual tax rates often higher than the corporate rate paid by huge public companies. Former President Donald Trump eased this burden by allowing a 20% deduction for LLCs’ business expenses. Biden is proposing to eliminate this deduction. He should keep it in place, at least for the smaller LLCs. Biden is also proposing to increase the corporate tax rate from 21% to 28%. Why not lower the rate for small businesses, or at least keep it where it is?
Small businesses struggled through the pandemic while big businesses thrived. This is a great time to start distinguishing between these entities for tax purposes. Big businesses are famously adept at structuring their operations to minimize their taxes, regardless of the rates in place. Small businesses do not have the same capabilities. Adding a progressive element to the way we tax business would mitigate this big-business advantage. Disparate tax treatment based on the size of the company is justified by any measure.
It’s popular these days to bemoan the rise of populism. It’s not popular to debate the root causes driving our populist politics. Why are people upset with our leaders and our institutions? There isn’t a lot of debate about that. The truth is people are frustrated because our system is not working for them. The current debates over taxes and wages are representative of this dynamic. Nobody in Washington is truly advocating for Main Street. Right now would be a great time to start.
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