I run a small business that serves small businesses. This gives me a unique perspective on the challenges and opportunities they face today.
Despite recent positive economic indicators, my experience dealing with small businesses on a day-to-day basis suggests they are still struggling. Many entrepreneurs tell me that the economic recovery has passed them over. Data supports my anecdotal evidence. A recent JP Morgan survey found the median American small business sees an average daily cash outflow of $374 and inflow of just $381. And U.S. startups are near a 40-year low even before accounting for population growth over that period.
Help may be on the way. President Trump and Congressional Republicans are coming together on a tax cut plan that would dramatically reduce the small-business tax burden. This would allow hardworking entrepreneurs to keep a little more of their earnings, which are needed to make their businesses thrive.
The current small business tax burden is far outside the international norm. Small businesses, the vast majority of which pay tax at the individual level, pay a federal marginal tax rate of 40 percent. Including state, payroll and other taxes, this figure can easily reach 50 percent. In today’s globalized economy, that means American small businesses are starting from their own one-yard line against their foreign competitors.
It’s true that effective small-business tax rates are somewhat lower. But most small-business decisions — whether to open another store, expand into a new product line, hire another employee, etc. — are made on a marginal basis. Therefore, inflated marginal tax rates act as a powerful disincentive to small-business investment and vitality.
Since small businesses are the lifeblood of the economy, providing half of all jobs and two-thirds of new jobs, this tax burden also hurts American communities. Rather than earnings staying at home where they are needed, they are shipped off to Washington, D.C., where they are not.
Small businesses are also the foundation of economic opportunity for American minorities, with nearly 40 percent of American small businesses owned by minorities; about half of all small businesses starting up today have women entrepreneurs as owners.
A recent national poll of small business owners conducted by the Job Creators Network illustrates how a tax cut would not only help small-business owners but also their communities. When asked what they would do with their tax cut savings, most owners responded that they would use them to expand their business, hire new employees, or raise existing employees’ wages.
This infusion of money into small businesses, employees, and communities would dramatically stimulate economic growth. We’ve seen this movie before. Ronald Reagan’s 1980s tax cuts got the economy out of similar economic doldrums to today’s and set the stage for nearly two decades of strong economic growth that benefited everyone, including small businesses and their customers.
A business succeeds to the extent it helps people by providing them value. The current tax code artificially reduces the value that small businesses can offer because it diverts their much needed earnings away to Washington.
Congress can fix this by coming together to pass significant small-business tax cuts now. This should not be a political Hail Mary, but the equivalent of a one-yard quarterback sneak. Here’s a chance to win one for our country, our communities, and millions of business owners and their employees.
Fran Tarkenton is the founder of Tarkenton Companies, former NFL quarterback, and a member of the Job Creators Network.