Inflation, Biden Regulations Are Making Life Hard, Small-Business Owners Say

People shop for bread at a supermarket in Monterey Park, Calif., on Oct. 19, 2022. Frederic J. Brown/AFP via Getty Images

Small-business owners are calling on Congress to address inflation by easing business regulations and taxes. They say Biden administration policies show disdain for small businesses.

Silvia Lee, executive vice president and chief lending officer for First Community Bank in Corpus Christi, Texas, said a commercial customer told her he felt targeted.

“He mentioned that he feels our government doesn’t want small businesses to succeed and only wants large companies in business,” she told the House Committee on Small Business at a June 7 hearing.

David Zittel, a vegetable farmer from New York, called on Congress to protect small businesses.

“The Zittels hope that vegetables will always be grown on our land for generations to come, and we look forward to carrying on the farming tradition but also look to Congress to ensure that laws and regulations do not put us out of business,” Zittel said.

Zittel and the other witnesses said regulation is raising the cost of doing business to the point that they are in danger of pricing their products out of the market.

Members of small business owners take part in a “Save Small Business” protest in Los Angeles, Calif., on Dec. 12, 2020. Ringo Chiu/AFP via Getty Images

Lee said that raising interest rates to control inflation forces many of her bank’s customers, home builders, to scale back their operations.

She told the committee that two builders in her area were forced to close with unfinished homes. This left their customers scrambling to find a builder to finish the jobs. She said she sees every day the effect that government has on businesses’ bottom lines.

Lee said that all of her bank’s employees bear some responsibility for compliance; at least 30 workers are responsible for ensuring compliance with banking regulations. She also said that ensuring compliance doesn’t increase a business’s profit margin. Committee member Rep. Blaine Luetkemeyer (R-Mo.) agreed that something should be done.

“That’s a dead investment,” he told Lee.

A letter signed by 66 business owners and submitted to the committee called on Congress to mitigate the Tax Cuts and Jobs Act of 2017.

A worker sits in an empty gift shop in New York City’s Chinatown on Feb. 13, 2020. Spencer Platt/Getty Images

That policy requires businesses to carry research and development costs on their books and depreciate them as an asset. The letter states that in the past, businesses were allowed to expense research and development, which reduces their tax burden and frees up money for more research, payroll, or other needs.

According to the letter, the tax regulation is tough on new businesses.

“Research, development, and experimentation costs can quickly eat away at a growing startup’s budget,” the letter reads. “But immediate expensing for R&E expenditures helps to offset these costs, allowing startups to propel the U.S. as a leader in global innovation.”

But at least one economist blames business for inflation.

Josh Bivens is chief economist and research director for the Economic Policy Institute in Washington. He said inflation is a complex issue and that in this case, it’s driven by businesses trying to deal with disruptions from the pandemic and the Russian invasion of Ukraine. He said that inflation is a global issue and that the United States is faring better than other countries in its recovery.

‘Shocks and Ripples’

Bivens said the inflationary cycle began with “shocks and ripples” during the pandemic.

“These shocks were the pandemic and the Russian invasion of Ukraine, and the ripples were mostly about jockeying by different economic actors—corporations, workers, and suppliers—to protect their real incomes from these shocks,” Bivens’s written testimony reads.

According to Bivens, the solution is more regulation. He said wealthier businesses could raise their prices while refusing to meet the increase in their suppliers’ prices. Some companies were forced to shut down. Others consolidated to survive. All this further disrupted the already tangled supply chain.

According to Bivens, whether those transactions were good or bad depends on which side of the deal you are on.

“One person’s income is another person’s cost,” he said.

Not Happening Fast Enough

Bivens said enacting and enforcing strong antitrust policies would “level the playing field.” This would hasten the reduction of inflation, which he said is already underway, although it’s trending very slowly.

“It’s not happening fast enough for most of us,” he said.

Zittel pointed out that, as a farmer, he has practically no control over market prices, the weather, and other forces that affect his business. In addition, he said that the state and federal labor regulations, including minimum wage laws, control 50 percent of his business costs.

“Farmers are price takers, not price makers,” Zittel said.

Lee and Zittel disagreed with Bivens’s solution. They said a better plan is to reduce regulation and allow businesses to expand. Gordon Gray, of the American Action Forum, agreed. He told the committee that the solution to inflation is basic: “Increase the supply.”