Small companies affected by the present economic turmoil are applying for bankruptcy at rates not seen since the start of the lockdown-induced recession, despite President Joe Biden touting an increase in new business endeavors.
According to a note obtained by Business Insider from investment bank UBS, economic phenomena such as inflationary stresses, as well as higher rates of interest due to the Federal Reserve’s monetary tightening, have resulted in an increase in the number of medium- and small-sized companies filing for bankruptcy. Fears of a credit crisis, exacerbated by the collapse of multiple banks, intensified the increase in bankruptcies. The number of company closures exceeded the high from three years ago when lockdown regulations were put in place by governments.
According to statistics from the American Bankruptcy Institute, the total number of monthly filings for bankruptcy hit nearly 32,000 in February 2023, an 18% increase from 27,000 in February 2022. Chapter 11 bankruptcies, which are usually used by bigger businesses due to their greater complexity, increased by 83% during the same time frame.
Nonetheless, White House communications have downplayed the current economic difficulties and the constraints they impose on small companies. Biden has frequently mentioned the generally higher rates of new company formation over the last three years, as shown by Census Bureau statistics, without mentioning the phenomena that are also having an effect on entrepreneurs.
“When I took office, the country was in shambles. Small companies were in trouble. Hundreds of thousands of small companies had shut down across the nation. Millions of Americans, many of whom worked in small companies, were laid off for no fault of their own,” according to Biden last week. “In order to jump-start the American economy, we needed to assist small businesses quickly. So we started working.”
The president stated that the American Rescue Plan stimulated the economy by providing emergency financing to millions of companies. Critics claim that the stimulus package exacerbated labor shortages by extending expanded federal jobless benefits created during the crisis, a fact that increased price levels.
The White House budget plan released last month would raise the corporate tax rate to 28%, splitting the difference between the present 21% rate and the earlier 35% rate that was in force prior to 2017. According to statistics collected by Americans for Tax Reform, one in every four corporations is a small company, suggesting that increased taxes would harm smaller employers.
Biden has also claimed that his policies have reduced inflation in recent months while failing to note that price increases are now four times greater than when he took office two years ago. “We are making progress in our fight against inflation,” he said in a statement last week. “The fight against inflation is far from over, and my administration is working hard every day to give families more breathing room.”
Inflation is more severe for low-income households, which generally devote a larger percentage of their monthly revenue to basic living costs than wealthier families. According to Bureau of Labor Statistics statistics, real earnings fell 1.9% between February 2022 and February 2023.