President Joe Biden has promised to help small businesses “Build Back Better” through grants, investments and an infrastructure package. Private equity is investing in small businesses, their workers and infrastructure projects across America and here in Arizona.
Unfortunately, there’s movement afoot in Congress to adversely disrupt that investment.
Almost half of America’s workforce is employed by a business with 500 or fewer workers. These businesses are the key to a sustained economic recovery, and investment in infrastructure is a critical way to help these businesses.
Small businesses depend on private equity to grow. Last year, 86% of the businesses receiving private equity investment employed 500 or fewer employees, according to a comprehensive report just released by EY and the American Investment Council.
Roughly a third of those private equity-backed businesses employed just 10 workers or less.
Private equity helped Black Rock Coffee grow
Black Rock Coffee has 18 locations across Arizona. This coffee chain’s partnership with private equity firm The Riverside Company helped the business grow by more than 20% annually and compete against larger, more established competitors. As with many businesses, Black Rock faced immense difficulties during the onset of the COVID-19 pandemic.
According to CEO Jeff Hernandez. “[Private equity] stuck with us. They saw through the madness and chaos of everything going on in the world. They saw that connection our customers have to our brand and our baristas was almost unshakeable and they followed through and made that investment.”
Businesses like Black Rock Coffee also depend on modern highways, rail networks and other critical infrastructure to bring customers in the door and have goods shipped across the country. A recent study from Moody’s found that every dollar invested in infrastructure corresponds with $1.50 increase in the gross domestic product (GDP).
Private equity stands ready to make these multiplier investments. In the past two years alone, private equity has raised more than $200 billion earmarked for infrastructure projects.
Taxes could cut jobs when we need to build back
There has been some talk in Washington, D.C., about penalizing private equity, venture capital and real estate investors by raising the tax rate on long-term capital gains paid by general partners – including new legislation from Sen. Tammy Baldwin, D-Wisc., and Rep. Bill Pascrell, D-N.J., that would change the tax treatment of carried interest.
Separating carried interest from other forms of long-term capital gains would punish those who contribute sweat equity, discouraging employers from hiring additional workers or keeping those they already have.
This proposal, which could find its way into the next reconciliation bill, is even more problematic when the U.S. economy is trying to build back from the steep, unexpected contraction caused by the global pandemic.
Instead, lawmakers in D.C. should support private equity and small businesses by passing a comprehensive, bipartisan infrastructure package.
Arizona Sens. Kyrsten Sinema and Mark Kelly will be critical voices and votes in the upcoming infrastructure debate. I urge them to continue supporting private investment’s role in helping small businesses here in Arizona and across the country.
Invest in bipartisan infrastructure instead
In total, the private equity industry directly employed 11.7 million workers in the United States last year. Even more impressively, the industry expanded its workforce, despite the U.S. economy contracting during the pandemic. Those workers earned $900 billion in wages and benefits in 2020, averaging approximately $73,000 annually or $38 per hour.
These totals do not include all the businesses and workers who supply private equity-backed businesses with services and supplies. Suppliers to the U.S. private equity sector employed an additional 7.5 million workers across the economy and paid $500 billion in wages and benefits.
All this activity generated $1.4 trillion for the U.S economy. That means the private equity sector accounted for roughly 6.5% of our country’s GDP in 2020. Here in Arizona, private equity directly employed 229,000 workers and generated more than $26 billion in economic activity.
Nearly 14,000 smaller employers in the U.S. depend on private equity investment. As an industry, we are committed to working with policymakers to ensure those small businesses have everything they need to sustain and grow, including upgrading our aging and crumbling infrastructure.
Drew Maloney is president and CEO of the American Investment Council. He previously served as the assistant secretary of the Treasury for Legislative Affairs. Share your thoughts at email@example.com.