Although every April 15 is an important day for the American taxpayer, this one holds special attention. That’s because the 2018 tax year was the first under a new tax law Congress and the administration passed. And the real effect of that law for small business has become clear.
The picture is not pretty: the law had no effect on the profitability or success of small business coupled with complex returns that cost more money to prepare. The results are official now, but the reality of the tax law for small-business owners arrived long before Tax Day.
Tax reform focused on giving a huge, permanent tax rate cut to large corporations. Corporate tax rates were slashed by 40 percent, from 35 percent to 21 percent, with the stated purpose of benefiting the whole economy without increasing the national debt. The tax cuts would pay for themselves with higher government revenue from a growing economy, we were told.
By comparison, most small businesses, but not all, were given a temporary, smaller tax deduction that was said to enable them to hire more workers, pay higher wages and grow their businesses.
Proponents of the tax law said the average family would have an additional $4,000 in income. The Trump administration forecast 3 percent annual growth for the nation well into the future.
Unfortunately, after nearly 16 months the hype of the economic promises has been exposed as the fraud many suspected.
Unemployment and local economies are essentially unchanged from before the law. Family incomes are stagnant. The U.S. economy started out strong in the beginning of 2018 but slowed to only a 2.2 percent annual growth rate, and there are reports that it will be even worse this year.
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The tax law of failed to deliver on promised economic growth despite dramatically increasing the budget deficit by 77 percent in the first four months of this fiscal year, due to a steep drop in corporate tax revenue. We are well on our way to increasing the national debt by $2 trillion over the next nine years.
A poll in early 2018 by Businesses for Responsible Tax Reform showed that 69 percent of small business owners didn’t think they would be able to hire as a result of the new law and 59 percent said they would not give raises.
A just-released national poll by Businesses for Responsible Tax Reform confirms the expectations of small-business owners from one year ago. Among those polled, 48 percent said the new law had no effect on the growth or profitability of their business, 74 percent said they were not able to hire new employees and 66 percent said they were not able to give raises because of the law.
As for corporations, they gave their tax cuts primarily to their wealthy investors in the form of stock buybacks.
The reality is that there was never a profit crisis holding corporations back from growing our economy that warranted this enormous tax cut.
However, there was and is a serious business crisis in this country.
It is the lack of growth in small business startups that traditionally account for most net new jobs. The Senate has now recognized our nation’s small-business crisis by forming an Entrepreneurship Caucus with bipartisan leadership to develop solutions.
Clearly, this is an economic problem that the tax code can be used to address.
The recent poll found two-thirds of small-business owners support partly rolling back the tax cut corporations received to fund policies that help small businesses. It also found tax policies small business owners support, included making the first $25,000 in profit for a small business tax-free, simplifying the tax code and giving small businesses some relief on payroll taxes.
A new tax reform bill is needed that supports and rewards the Main Street entrepreneurs who create jobs and invest in our communities.
The voice of small business was not heard in 2017. For the good of our country it must be heard now.
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• Frank Knapp Jr. is the co-chair of Businesses for Responsible Tax Reform and president/CEO of the South Carolina Small Business Chamber of Commerce. He wrote this for InsideSources.com.