“Many happy returns” may be a fitting birthday or anniversary wish, but it certainly doesn’t describe what most small business taxpayers are experiencing in the first real test run of the new Republican tax law. As we near the end of the 2019 tax season, the shock waves are reverberating. Among the casualties:
- Small business owners who were expecting significant savings this year and instead saw little to none.
- Small business owners who have ended up paying significantly more in accounting fees this year because of the level of complexity created by the tax law.
- CPAs and tax preparers, traditionally willing to go into overdrive for clients during tax season, leaving the field in frustration because the law has added so much burdensome complexity. This is neither hearsay nor hyperbole. Several of the CPAs who have moved on were my colleagues.
- And small business CPAs and tax preparers who have seen the normal four-month tax season sprint shift to a year-round endurance race dedicated to helping clients understand and manage the complexities of the law.
I am a CPA who specializes in small businesses and I want to be clear: I’m not concerned about the year-round tax necessity for tax assistance because I personally will have less time for leisure activities. I am concerned because I see the havoc it is wreaking on my small business clients, many of whom took on great financial and personal risk to open a restaurant, start a medical practice or set up a niche logistics operation.
To put it bluntly, I am exhausted dealing with our clients who are surprised by the outcome of “tax reform.” One older client recently told me, “I can’t afford another tax cut.”
The costs and complexities are annoying and troubling—and for many clients, costly—but the most maddening big-picture problem is the wide disparity the tax law creates between large corporations and small businesses. Promising to deliver accelerated job growth,$4,000 more income per average family and greater consumer demand, lawmakers slashed the corporate tax rate to 21 percent, a whopping 40 percent rate cut. Pass-through businesses—the vast majority of which are small—in the meantime were handed a 20 percent tax deduction that expires in a few years along with a new set of incredibly complex tax rules to follow.
The tax law failed to deliver on the big promises and most small businesses knew from the outset that the much smaller, complicated and temporary benefits for them would not help them significantly invest in their businesses.
A poll Businesses for Responsible Tax Reform conducted last year 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 raises. That’s not surprising considering the Joint Committee on Taxation found 44 percent of the tax benefits for small businesses will 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.
And as we’ve seen in one news story after another, corporations took their enormous tax break and gave the windfall to their wealthy investors in the form of stock buybacks. By comparison, some small business owners got a few extra bucks they could use to pay their higher accounting bill.
That lopsided result is troubling for small business owners and for our economy. Corporations didn’t need the extra cash. They were doing just fine. But there is a serious threat to our economy from a lack of growth in small business start-ups that traditionally account for most net new jobs in our country.
Tax policy chooses winners and losers, and the winners here are not Main Street small businesses or their customer base, middle-class consumers. The winners are big corporations and the ultra-wealthy.
We need to create a tax code that supports and rewards the Main Street entrepreneurs who create jobs and invest in our communities. Our economy can’t afford not to.
Anne Zimmerman is a small business CPA in Cincinnati, Ohio, and co-chair of Businesses for Responsible Tax Reform.