President Trump promised voters that his administration would push through the biggest tax relief package since the Reagan years, and it looks like Congress might pull through with the president’s promise this year. At the heart of the plan is a long-overdue small business tax cut – “rocket fuel for our economy,” in the president’s words.
That’s exactly right. Small businesses have paid too much for too long. It’s not just unfair; it’s holding the whole economy back.
The problem is that nearly all small businesses are still taxed at the highest applicable individual rate, no matter how many employees are on payroll. In Washington, it’s known as “pass-through” taxation. For small firms around the country, it’s more accurately described as a rip-off. Adding in state and local taxes, the federal pass-through rate can leave a small business with half of its annual income stream to work with. That’s why it’s so important for Congress to follow President Trump’s lead and drop the 40 percent federal rate to 25 percent.
Time is running out. This year’s last legislative session is over next month. America’s almost 30 million small business owners don’t quit, but they are tired of the harsh tax treatment, and there’s no excuse for another holiday season spent in the shadow of the tax crunch. Today’s exorbitant rates have most handing even more money to tax preparers and advisrrs – money that, like revenue lost to excessive taxation, could go to increasing wages, adding more workers or locations, and improving facilities and equipment.
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In fact, that’s exactly where millions of small businesses want to put their money right now. Polling shows most would use a tax cut to beef up jobs, paychecks, or infrastructure, according to the Job Creators Network. Small businesses don’t want to hide their earnings under a mattress. They want to put them to work, reinvesting to expand.
I know firsthand how much small businesses would do with the kind of tax relief the president supports. I’ve owned and managed several small businesses in the sports industry. I know that small business is as important a part of American industry as it is a part of everyday life on Main Street. Right now, business owners everywhere are busy doing what all small businesses want to do: Attempting to grow operations to reach that next level of productivity. It’s a tough job, but the biggest challenge – those burdensome tax rates – is the easiest to surmount, if Congress delivers on its promises to small businesses nationwide.
North Carolinians as a whole understand what’s at stake. Over 97 percent of all businesses in our state are small businesses. Roughly 850,000 strong, they employ over 1.5 million people, which represents approximately 40 percent of the private sector work force. Like many state residents, our Rep. Mark Meadows, chairman of the House Freedom Caucus, also has a small business background. It taught him the same thing mine taught me. “When you allow me to invest more dollars back into my business or into higher wages and making sure that I’m more productive,” he recently told Fox News, “it produces not only an effect on my employees, but on everything that they buy and purchase.”
Tax cuts for small businesses are important, straightforward, and popular. A new poll by the Wall Street Journal showed a majority is even more anxious for small business cuts than individual cuts for their families. Most Americans surveyed agree that a bipartisan bill is a must this year. In North Carolina, we’ve seen tax cuts accompanied by budget tightening lead to revenue increases and strong economic growth. It can be done in Washington, D.C., too.
We’ve known for a long time the tax code needs fixing. Now’s the time for Congress to ensure a brighter future isn’t stuck on the launch pad.
Jon Pritchett is a senior vice president at the John Locke Foundation in Raleigh.