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Millions of small businesses are filing their full-year taxes under the Tax Cuts and Jobs Act for the first time. The National Federation of Independent Business has heard from our members about the difference the new law makes.
Fairfield Insulation and Drywall, a small Ohio-based company, was able to expand life insurance benefits for its employees last year. This year, it will increase its 401(k) match.
Greetings, Inc., a trucking and warehousing business in Iowa, opened its new warehouse expansion this past December. This grew the company’s warehouse space by nearly 10 percent.
Suburban Painting Co., out of Kentucky, recently hired four additional workers and bought a new truck to help it expand its services.
And GKM Auto Parts, out of Zanesville, Ohio, reinstated health-care benefits for its employees. The company had ended this benefit in 2016 after unaffordable double-digit premium hikes.
Stories like these can be found in nearly every community in every state. As of 2018, there are more than 30 million small businesses – representing 99.9 percent of all firms in the United States – and they employ nearly 60 million workers, nearly half of the U.S. workforce. According to NFIB research, three-quarters of these firms expected the tax cuts to benefit their business, and only three percent thought it would hurt. Such optimism was well-founded.
Consider the law’s cuts to individual income taxes, which lowered rates and raised thresholds for nearly every tax bracket. This helps the roughly 75 percent of small businesses that pay taxes as individuals. These companies also benefit from the higher threshold for the Alternative Minimum Tax, which now kicks in at a million dollars instead of $160,900. Finally, tens of thousands of small businesses benefit from the doubling of the estate tax exemption. Many family-owned firms can finally keep the business in the family.
Most importantly, the more than 90 percent of small businesses organized as pass-throughs can now claim a 20 percent deduction on business income, a concept we originated and helped secure. Congress’ Joint Committee on Taxation estimates this deduction saved small businesses some $27 billion in 2018. Over 10 years, it will enable small businesses to put an estimated $414 billion back into their employees, their communities, and their futures. This is the largest tax cut for small businesses in history.
These victories explain why small businesses entered 2019 with 45-year records for job openings, hiring plans, pay raises, profit growth, and inventory investment. Moreover, in February, small business job creation hit an all-time high, with manufacturers and construction companies showing the strongest plans for further expansion.
But while the excitement is evident in this tax season, small businesses fear it could soon fade without action by Congress.
The law’s tax cuts for corporations are permanent. Its individual tax cuts and the small business deduction are not. These crucial provisions will now disappear in less than seven years. For NFIB members, most of whom are already planning well into the future, this deadline is fast approaching.
The President’s Council of Economic Advisers recommends that Congress make permanent all of the Tax Cuts and Jobs Act’s expiring provisions. This is a sound policy that would give small businesses greater confidence to make decisions with long-term consequences. Conversely, every year that Congress fails to act will cause small business uncertainty to grow, with potentially disastrous results.
We caught a glimpse of this during the recent federal government shutdown, which saw the NFIB’s uncertainty index rise by nearly 10 percent in January. This contributed to a noticeable decline in reports of pay raises the following month. The lesson for lawmakers should be clear: When small businesses worry, workers and communities suffer.
This tax season is a time for celebration for millions of small business owners and their employees. For Congress, it should be a time for action. A bipartisan group of Representatives has already introduced a bill – the Main Street Tax Certainty Act – to make the tax cuts permanent. They know that supporting small business is a bipartisan cause and the benefits can be felt in both red and blue states.
Congress should advance this bipartisan bill as soon as possible. The longer lawmakers delay, the more difficult it will be for small businesses to contribute to the economy and their communities – even though they want to do even more.
Ms. Duggan is president and CEO of the National Federation of Independent Business.