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Small Business Taxed for Pandemic Shortfalls

Posted June 07, 2021

Aaron Gentzler

By Aaron Gentzler

Small Business Taxed for Pandemic Shortfalls

I spent time this weekend with a friend of mine who owns a small electrical contracting business headquartered in northern Maryland.

During the pandemic, he was fortunate his business was labeled “essential” in Maryland (which wasn’t the case in neighboring Pennsylvania where he operates too).

That said, he managed to stay afloat in 2020 -- despite weeks-long delays on electrical supplies -- and he avoided laying off any of his five employees.

So, he was surprised when he received notice from the state of Maryland this spring that his mandatory unemployment insurance contributions would increase in 2021 from 0.3% to 2.3%.

The justification? “Since the beginning of the pandemic, over $1.5 billion in benefits have been awarded from the Unemployment Insurance Trust Fund,” according to the Maryland Department of Labor’s website. “All employers will see an increase in their tax rate for the calendar year 2021.”

For my friend, that increase is 7.7 times what he paid in 2020…

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Your Rundown for Monday, June 7, 2021…

As Small Business Goes, So Goes the Economy…

And here’s the experience of another Maryland small business, according to VP David Watts of DRD Pool Management.

“Our unemployment insurance [contributions] will go from about $15,000 a year,” Mr. Watt says, “to close to $75,000 a year.

“I didn’t know they were gonna be coming back to small business owners -- [who] have done everything they can to keep the doors open… during the last 14 months -- and ask them to pay more,” he says.

Still, Mr. Watts is one of the lucky ones. According to a recent Fed study: “The pandemic resulted in the permanent closure of roughly 200,000 U.S. establishments above historical levels during the first year of the viral outbreak,” The Wall Street Journal notes.

“The new estimate suggests that U.S. business failures have been fewer than some economists expected.” Exactly half what economists predicted, in fact.

But it doesn’t require a degree in economics to figure many businesses were able to white-knuckle their way through 2020 because of massive federal aid.

So, when the Treasury flips the switch on the money printer? “Some businesses that have hung on could eventually collapse under the weight of back rent, unpaid loans and other expenses,” says The Wall Street Journal.

“Other expenses”… including exponentially higher unemployment insurance contributions… jeopardize the backbone of the American economy. We’re not just paying lip service here: small businesses account for about half the U.S. GDP.

And we can’t believe Maryland is an exceptional case -- we imagine businesses across the country are picking up the tab for pandemic shortfalls. And buckling under the pressure.

[So, what’s the outlook for small business in your state? Or if you’re a small business owner yourself, what are some unexpected expenses you’re coming up against in 2021?

We’d love to publish your “boots on the ground” insights… ]

Market Rundown for Monday, June 7, 2021

The S&P 500 is down 12 points to 4,217.

Oil is down 0.7% to $69.12 for a barrel of West Texas crude.

Gold is up $4.30 to $1,896.40 per ounce.

Bitcoin is up $295 at the time of writing to $36,080.

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We hope your week’s off to a great start… We’ll talk more Wednesday.

For The Rundown,

Aaron Gentzler

Aaron Gentzler
Editor, The Rundown

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