Modified House tax bill hits right notes for small businesses

Modified House tax bill hits right notes for small businesses
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The House is expected this week to pass the most comprehensive tax reform in more than 30 years. The measure is aimed at boosting the U.S. economy, mainly by reducing taxes on businesses. The Senate introduced its plan last week, which leaders expect to pass before the end of the year.

The respective versions will have to be reconciled, and potential obstacles remain, but the elusive goal of tax reform is within reach. Every American has a stake in the success of this effort, for no other public goal is possible, including national security, better public education or a modernized infrastructure, without stronger, faster economic growth. 

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For small businesses, tax reform is imperative. According to the National Federation of Independent Business (NFIB) Problems and Priorities survey, five of the top 10 problems for small businesses are related to the federal tax code. Taxes are too high, the tax code is too complicated and compliance is very costly. 

 

Many Americans might not realize that 99.9 percent of all U.S. businesses are small businesses. They represent half the GDP and create half the jobs. For tax reform to ignite the economy, its benefits must extend beyond large corporations to the millions of independent, privately-run businesses that form the backbone of the economy.

That’s why we were glad when House leaders made an important change to the original bill that extends the benefits of lower taxes to millions of small businesses that were overlooked in the original version. This is a crucially important improvement. 

Under current law, the top tax rate for pass-through firms is 39.6 percent. Three quarters of all small businesses are organized as pass-throughs. The House plan would reduce that rate to 25 percent.

That threshold, however, would have left out 85 to 90 percent of small businesses because they don’t generate that much pass-through business income. The smallest business owners, like shop owners, local contractors and local professionals, would have been left out.

To correct this, Chairman Brady offered an amendment to create a new 9-percent pass-through rate, under which small businesses with less than $200k in taxable income will pay, on average, thousands less to Washington. That is a substantial savings that they can reinvest in new equipment, new employees, more inventory or other resources to help them grow. 

The House bill contains other provisions that NFIB supports, including the elimination of the estate tax; elimination of the Alternative Minimum Tax; and doubling of the standard deduction.

Still, the best and fastest way to lift small businesses is to cut rates and let them keep more of their money to invest in their businesses and create jobs. The House bill does that, which is why NFIB is proud to support it. 

We appreciate how hard congressional leaders have worked on tax reform. We are especially encouraged that leaders in both chambers and President Trump have made it their top priority. They understand that without a stronger economy, little else matters.

Americans need more jobs, higher wages and a brighter future. In the coming days, we will be working to ensure that tax reform becomes law, and that small businesses can lead, as they always have, America’s next great era of prosperity. 

Juanita Duggan is president and CEO of the National Federation of Independent Business, the country’s leading advocate for small business owners.