WHILE every April 15th 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 in December 2017 and the real effect of that law is becoming clear.
So far, reports from small-business owners around the country are telling us the results are what we expected—more complicated returns costing more money to prepare.
However, the reality of the 2017 tax law for small-business owners arrived long before Tax Day.
Tax reform heavily focused on giving huge tax rate cuts to large corporations. Corporate tax rates were reduced 40 percent with the stated intent 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.
Proponents of tax law said job growth would be accelerated and 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.
As a result of all of this, small businesses were to benefit from greater consumer demand for our goods and services.
Unfortunately, after 15 months of the new tax law, 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 with 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 $2 trillion over the next nine years.
None of this comes as a surprise to most small businesses. They knew that the much smaller, complicated and temporary benefits the law was to give to them would not enable them to significantly invest in their businesses.
A poll Businesses for Responsible Tax Reform conducted in early 2018 found 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 their employees raises.
That’s not surprising considering the Joint Committee on Taxation found 44 percent of the tax benefits for small businesses would go to just 200,000 business owners making $1 million or more. By 2024, millionaires will be receiving over half of that tax relief. This means less than 1 percent of small-business owners are receiving the lion’s share of the benefit.
As for the tax windfall for corporations, as predicted corporations gave their 40 percent tax cuts primarily to their wealthy investors in the form of stock buybacks.
The reality is that there was never a profit-crisis for corporations that was holding them back from growing our economy that warranted this enormous tax cut. However, there was and is a serious business crisis in this country that threatens our economy.
It is the lack of growth in small-business start-ups that traditionally account for most net new jobs in our country. 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 correctly be used to address. 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 the unfulfilled rewards promised to us from the corporate tax cuts, 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.