The specter of stagflation has returned. On April 25th, The Bureau of Economic Analysis announced that GDP only grew by 1.6% in the first quarter of this year, well below expectations.
Consumer spending on goods actually declined in the quarter as ordinary Americans are financially tapped out. The report also showed inflation remains stubbornly high, continuing a recent trend of resurgent inflation running about twice the Federal Reserve's target rate.
American small businesses are the biggest victims of the stagflationary economy, which is being weighed down by big government policies. This was the most important storyline coming out of this Month’s National Small Business Week.
President Biden is claiming a small business "boom" under his administration. The reality is entrepreneurs grapple with a triple threat: a decelerating economy, soaring inflation, and escalating credit expenses due to his bad policies.
American consumers have a record $1.2 trillion of credit card debt. They are experiencing declining real wages and face a cost-of-living crisis. They can't afford to keep up their discretionary spending, which small businesses rely on to survive and thrive.
It now costs the average American family $12,000 more to enjoy the same living standards as before President Biden took office.
Since Biden's inauguration, wholesale costs for small businesses have risen by 20%. To maintain their slim profit margins, entrepreneurs are forced to raise prices, alienating loyal customers and reducing demand. Commentators and the media don't understand that there's only so much customers are willing to pay for nonessential goods and services.
To contend with outrageous inflation, the Fed raised interest rates to a 22-year high. High credit costs have dried up access to capital, making it impossible or prohibitively expensive for small businesses to expand or even continue operating.
The Fed was supposed to start cutting interest rates soon, but as I predicted, given resurgent inflation, they have no other choice but to maintain today's elevated levels, continuing the credit crunch.
Given these headwinds, it's no surprise that Job Creators Network's national poll of small businesses finds two-thirds of respondents say the current economic climate may force them to close their doors. Most businesses say the price hikes they are facing are more than the official inflation numbers suggest. One-third say elevated neighborhood crime is reducing their earnings. Small businesses are whimpering, not booming.
Coverage of National Small Business Week was no surprise – the mainstream media refuses to admit that big government policies are why small businesses are suffering. Consider the reckless spending fueling inflation's fire. The annual deficit is on track to surpass $2 trillion this year, and the nation adds another $1 trillion to the national debt every three months. This money printing is rapidly devaluing the value of the dollar, hurting small businesses and consumers.
The Biden administration is also in the midst of a regulatory onslaught that's hitting small businesses hard. It recently issued rules expanding overtime pay, banning noncompete contracts, mandating electric vehicle use, and regulating internet access. According to the American Action Forum, the Biden administration has issued more than $1 trillion of regulations – 30 times more than under President Trump.
Biden's biggest threat to small businesses is still to come. He recently promised that if he's reelected, he will dramatically raise taxes on small businesses by letting the Tax Cuts and Jobs Act expire in 2025 as scheduled. That means small businesses would face a 20% tax hike, the end of bonus depreciation, and higher tax brackets on their earnings. This massive tax hike would throw today's stagflationary economy into recession.
Here's the real message of National Small Business Week: Biden and Democrats are waging a war on small businesses that won't end until they've been voted out of office.
Alfredo Ortiz is CEO of Job Creators Network, author of "The Real Race Revolutionaries," and co-host of the Main Street Matters podcast.
