Waco Tribune-Herald 4-10-19
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Columbia Regional Business Report 4-22-19
By Frank Knapp Jr.
While 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 finally become clear.
The picture is not pretty: the law that had no impact 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 supposedly 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 of the new tax law, the hype of these 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. There are reports that it will be even worse this year. Fears of a recession are mounting.
The tax law of 2017 failed to deliver on the promised American economic growth despite dramatically increasing the national debt by 77 percent in the first four months of this federal fiscal year due to a steep drop in corporate tax revenue. We are well on our way to increasing the national debt by some $2 trillion over the next nine years.
None of this comes as a surprise to most small businesses. When the new law passed, these entrepreneurs knew that the much smaller, complicated and temporary small-business benefits the tax reform promised would not enable them to significantly invest in their businesses.
A poll in early 2018 by Businesses for Responsible Tax Reform showed that 69 percent of small-business owners didn’t believe they would be able to hire as a result of the new law and 59 percent said they would not give raises.
So were those predictions in early 2018 correct?
A new national poll by Businesses for Responsible Tax Reform was just released and it confirms the expectations of small-business owners from a year ago:
- 48 percent said the new tax law had no effect on the growth or profitability of their business, 24 percent said it had a negative impact and only 19 percent said it had a positive impact.
- 74 percent said they were not able to hire new employees due to the law.
- 66 percent said they were not able to give raises due to the law.
As for the tax windfall for corporations, as predicted they gave their 40 percent tax cuts primarily to their wealthy investors in the form of stock buybacks.
Hard reality: There was never a crisis holding corporations back from growing our economy that warranted this enormous tax cut. However, there was and is a serious business crisis in the country. Small-business start-ups 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 help address. The recent small-business poll found that two-thirds of small-business owners support partly rolling back the 40 percent tax cut corporations received to fund policies that instead help small businesses. It also found that tax policies small-business owners support include 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. If we want new job growth, we need more small businesses. If we want to offer individuals and families a path to financial security and upward social mobility, we need more small businesses. If we want to really lift our economy, we need more small businesses.
The voice of small business was not heard in 2017. For the good of our country, it must be heard now.
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.