inflation. supply chain. Labor shortage. These three things are probably the easiest way to sum up 2022 for small businesses. The National Federation of Independent Business’ (NFIB) optimism index remains below its 49-year average, suggesting business owners aren’t feeling too hopeful about the future. Much of this unease is no doubt attributable to discord in Washington, with Congress and the White House permanently at loggerheads. There is plenty of federal funding available to help local economies recover, but small businesses continue to face obstacles. The NFIB’s December employment report shows that workforce quality is the top operating issue facing small employers. While the same report showed job vacancies down a few percentage points, 44% of small business owners said they had job openings they couldn’t fill, well above the historical average of 23%.
With the swearing-in of a new Governor, Comptroller, Attorney General and General Assembly, a lot will change in Annapolis. No doubt the new policy makers will have their own ideas about how to solve the problems facing Marylanders. They will transition from campaigning to policymaking, and the NFIB will serve as a resource to understand what small businesses need from their representation. Of course, there will be differences of opinion on policy, but the focus must be on improving the business climate in Maryland. Progress has been made over the years, but a fragile recovery and fears of a looming recession should deter policymakers from doing anything to make it harder for small business owners to attract, hire and retain job applicants. Small businesses are the backbone of our state’s economy, and anything passed by the Assembly should reflect that.
The coming year will feature a variety of issues that are important to small businesses. Some of these will have an immediate impact on their bottom line, while others will set the stage for their future success or failure. Here’s what the NFIB will be watching closely during the 90-day legislative session that begins Jan. 11.
Less than four years ago, the General Assembly passed a statewide minimum wage of $15 over the objections of small businesses. Our members work hard to demonstrate the compounding impact this move will have on their ability to run a business. Ultimately, the legislature moved forward with this ill-advised proposal. While we generally oppose the bill, lawmakers acknowledged some of the concerns of the business community by adding amendments. That said, businesses with 14 or fewer employees are allowed more time to raise to $15.
But now, policymakers, including governor-elects, say they intend to accelerate the pace of gradual implementation. On top of that, there may be an effort to tie the state’s minimum wage to inflation. The state’s inflation-linked gasoline tax rose 18 percent last summer. Small businesses cannot afford to grow year after year.
Taken together, these proposals would have a hugely disruptive impact on small businesses in Maryland.
In fact, small businesses have voluntarily raised salaries to attract and retain talent. The NFIB’s November jobs report showed a net 40% of homeowners increased pay. Arbitrarily raising the minimum wage in this state, faster than our members plan, and at a time when many are already doing so, will only hurt our smallest businesses. Especially in industries like retail and hospitality that are still struggling to reach pre-pandemic staffing levels.
If House Bill 698 — which would also accelerate the $15 minimum wage — goes into effect starting in 2022, labor costs for small business owners with 15 employees would rise by more than $50,000 in the last six months of the year. That’s simply not sustainable.
The state’s Unemployment Insurance Trust Fund (UITF) is under unprecedented pressure during the pandemic. The record number of claims in 2020-2021 has led to a surge in unemployment insurance taxes for employers, with some adding 400-600% to their tax bills in the first quarter of last year. The UI tax scale jumps from A (lowest) to F (highest) in 2021. Thankfully, the NFIB, with the help of legislative leaders and the Hogan government, has passed legislation to reduce employer tax rates to Schedule C in 2022 and 2023.
However, this relief may be short-lived, as some policymakers may seek to increase the weekly benefit amount claimants can receive. There was also talk of indexing benefit amounts to inflation. It would not be wise to increase the amount after the economic crisis has depleted the UITF at an unprecedented rate. Linking future benefits to inflation will only make it harder for employers to keep taxes low. Remember, only employers contribute to the UITF in Maryland. Other states, such as New Jersey and Pennsylvania, include worker contributions in their funds. Increasing spending while asking small businesses to foot the bill will be a very difficult task.
Maryland has a “historic” general fund surplus. During this session, the NFIB will work with any legislator willing to improve the business climate in Maryland by helping our small businesses and communities by investing surplus responsibly and wisely, rather than increasing the cost of doing business in Maryland.
Mike O’Halloran is the Maryland director of the National Federation of Independent Business.