Small businesses impacted by the current economic tumult are filing for bankruptcy at levels last witnessed at the outset of the lockdown-induced recession, even as President Joe Biden touts an uptick in new business ventures.
Economic phenomena such as inflationary pressures, as well as the rising interest rates caused by monetary tightening from the Federal Reserve, had produced an increase in the number of small and medium-sized businesses filing for bankruptcy, according to a note from investment bank UBS obtained by Business Insider. Fears of a credit crunch amid the failure of multiple banks worsened the rise in bankruptcies. The number of business closures surpassed the peak witnessed three years ago when governments implemented lockdown mandates.
The number of monthly bankruptcy filings reached nearly 32,000 as of February 2023, an 18% rise from the 27,000 bankruptcy filings seen in February 2022, according to data from the American Bankruptcy Institute. Chapter 11 bankruptcies, which are typically used by larger businesses because of their more complex nature, increased by 83% over the same period.
Communications from the White House have nevertheless downplayed the present economic challenges and the burdens they create for small businesses. Biden has repeatedly cited the overall higher rates of new business formation over the past three years, as noted by data from the Census Bureau, without noting the phenomena which have simultaneously weighed upon entrepreneurs.
“When I came into office, this economy was reeling. Small businesses were hurting. Literally hundreds of thousands of small businesses had closed across the country. Millions of Americans, many of whom worked in small businesses, lost their jobs through no fault of their own,” Biden said last week. “To jumpstart American economic recovery, we needed to help the small businesses and we needed to help them fast. So we got to work.”
The commander-in-chief claimed that the American Rescue Plan boosted the economy by delivering emergency loans to millions of businesses. Critics have asserted that the stimulus package worsened labor shortages by extending enhanced federal unemployment benefits established amid the recession, a reality which thereby increased price levels.
The budget proposal unveiled last month by the White House would increase the corporate tax to 28%, which would split the difference between the current 21% rate and the previous 35% rate that was in effect before 2017. One in four businesses registered as corporations are small businesses, according to data compiled by Americans for Tax Reform, implying that the higher taxes would negatively impact smaller employers.
Biden has likewise contended that his policies have lowered inflation in recent months while neglecting to mention that price level increases are currently four times higher than the rates observed when he assumed office two years ago. “We are making progress in the fight against inflation,” he said last week in a statement. “The fight against inflation isn’t over, and every day my administration is working to give families more breathing room.”
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Inflation has a more severe impact on low-income households, which typically allocate a greater portion of their monthly income to core living expenses relative to wealthier families. Real wages plummeted 1.9% between February 2022 and February 2023, according to data from the Bureau of Labor Statistics.