In the opening days of 2026, America’s small and medium-sized businesses confront a pivotal year defined by sweeping tax reforms, persistent economic headwinds, tightened immigration rules, and accelerating artificial intelligence adoption. The U.S. Chamber of Commerce’s inaugural Small Business Update lays bare the stakes, with EVP and Chief Policy Officer Neil Bradley warning that growth just above 2% in 2025 falls short of the 3% threshold needed for wage gains. “We keep getting these quarterly estimates about how the economy is doing … but they diverge wildly,” Bradley told CO— Editor-in-Chief Jeanette Mulvey. Inflation lingers at 2.7%, exceeding the Federal Reserve’s target, while high interest rates persist.

Federal Reserve rate cuts will come slowly, Bradley predicts, holding steady through mid-year before easing. Affordability pressures squeeze SMBs reliant on borrowing for expansion. Tariffs, now eight to ten times higher than early 2025 levels, exacerbate supply chain strains and inflation. A Supreme Court challenge to tariffs imposed under the International Emergency Economic Powers Act could yield refunds, though many on China goods and metals endure.

Economic Pressures Test Resilience

The One Big Beautiful Bill Act of 2025 delivers tax clarity and incentives central to SMB strategies. Permanent extension of the 20% Qualified Business Income deduction averts a tax cliff, anchoring pass-through entity rates at about 29.6% versus a potential 39.6%, per TimeTrex. Full expensing for R&D and capital investments like machinery expands, retroactive in parts. “Some of the more beneficial provisions are this clarity about your ability to fully deduct your R&D expenses and … your capital investments,” Bradley noted.

Section 179 expensing rises to $2.5 million for 2026, phasing out above $3.63 million, paired with permanent 100% bonus depreciation. Employer-provided childcare credits jump to 40% (50% for small firms) up to $500,000 ($600,000 eligible), aiding retention amid labor shortages. Mileage deduction climbs 2.5 cents to 72.5 cents per mile, per Fox Business. States like Georgia, Nebraska, and North Carolina cut rates further, as detailed by the Small Business & Entrepreneurship Council.

Yet mismatches in withholding from 2025 changes demand payroll adjustments, warns Accounting Today. 1099 thresholds rise to $2,000, easing reporting for contractors.

Tax Reforms Fuel Investment Surge

Immigration curbs, including $100,000 H-1B fees and stricter visitor rules, shrink labor pools and local consumer bases. Bradley highlights hiring woes: new restrictions net reduce migration, hitting sectors like tech, hospitality, and construction. Reduced inflows constrain supply, keeping unemployment mid-4s but capping growth potential, Oxford Economics notes in Finance & Commerce.

SMBs face workforce gaps as deportations and demographics slow population growth. JPMorganChase’s survey reveals 31% cite labor alongside tariffs as top concerns, prompting cash reserves buildup and supplier renegotiations. Immigration’s drag on housing and services amplifies tariff costs passed to consumers mid-year.

Comerica’s Small Business Pulse Index shows 80% confident in 12-month outlooks, projecting 7.9% revenue growth, though tariffs loom large.

Immigration Squeeze Hits Hiring Hard

AI adoption accelerates sans federal rules, with state patchwork emerging. Bradley sees vast opportunity: “When I talk to small businesses, they’re just getting in … and figuring out how to use [AI] to improve their own operations … there’s a huge opportunity … in 2026 for small businesses to boost productivity.” U.S. Chamber’s Small Business bAIsics, partnering with Google, trains 40,000 owners.

A 2025 Chamber report finds 60% of SMBs using AI, shifting from trials to operations via tools like Durable. LinkedIn’s Sharat Raghavan calls AI a “strategic asset” for resilience, per U.S. Chamber. Yet 64% lack training, 52% no policies, risking gaps in small tax practices.

State regs vary: Colorado’s AI Act mandates risk assessments by mid-2026; California’s targets safety, employment bias. Indiana taxes generative AI; more states follow. Federal executive orders push innovation over mandates.

AI Boom Promises Productivity Leap

Economists forecast 1.8-2.1% GDP growth, buoyed by tax cuts, AI capex, and rate relief, per Morgan Stanley and PwC. Oxford Economics’ Michael Pierce expects strengthening: “fading policy uncertainty, the boost from tax cuts and the recent loosening of monetary policy.” AI hyperscaler spending surges 33%, though profits lag hype.

NFIB optimism ticks up; MetLife/Chamber index hits record 72.0. Hartford’s Global Insights flags tariffs, inflation, but notes AI offsets. Reuters pegs tax changes as principal 2026 driver.

SMBs must navigate: leverage deductions for capex, train on AI via Chamber resources, monitor tariff rulings, adapt hiring. Proactive engagement with policymakers, as Bradley urges, shapes outcomes.

Outlook Blends Tailwinds and Turbulence