Small Business Bankruptcies Reach Worrisome Level As Biden Touts Rising Business Formation
Small businesses have been filing for bankruptcy at levels similar to those seen during the start of the lockdown-induced recession, despite the Biden administration touting an increase in new business ventures. Economic factors such as inflation and rising interest rates caused by Federal Reserve monetary policies have contributed to the rise in bankruptcies. Fears of a credit crunch amid the failure of multiple banks have also exacerbated the situation. According to the American Bankruptcy Institute, the number of monthly bankruptcy filings reached almost 32,000 as of February 2023, an increase of 18% from February 2022, and Chapter 11 bankruptcies increased by 83% over the same period.
The White House has downplayed the economic challenges and burdens they create for small businesses. President Biden has repeatedly cited overall higher rates of new business formation over the past three years without acknowledging the factors affecting entrepreneurs. Critics have also asserted that the stimulus package, such as the American Rescue Plan established amid the recession, worsened labor shortages by extending enhanced federal unemployment benefits, leading to increased price levels.
The budget proposal by the White House plans to increase the corporate tax to 28%, which would negatively impact small businesses, as one in four businesses registered as corporations are small businesses. Biden has also claimed that his policies have lowered inflation in recent months, even though current price level increases are four times higher than when he assumed the office two years ago, and that they are working every day to give families more breathing room.
Inflation has a greater impact on low-income households, which allocate a greater portion of their monthly income to core living expenses compared to wealthier families. Real wages plummeted by 1.9% between February 2022 and February 2023, according to data from the Bureau of Labor Statistics.
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