When President Trump signed The Tax Cuts and Jobs Act into law in December, it was the biggest tax overhaul in more than three decades, and it dramatically changed the landscape for many small businesses. Since the enactment of the tax law, the tangible effect has been remarkable and historic. Small and independent business owners are notably confident about the economy. They are reporting that sales are strong, profits are good, and employee compensation is increasing. And many are setting into motion plans to expand.
For years, small businesses have counted tax issues among five of their top ten problems and priorities. That’s why, during the tax debate, the National Federation of Independent Business (NFIB) worked tirelessly with Congress and the White House to ensure the final tax bill included real relief for small businesses.
{mosads}In the end, it did.
For small business, the centerpiece of those changes is the new Section 199A, or the pass-through deduction – important because more than 90 percent of small businesses are organized as pass-throughs, not as corporations. Under the law, a pass-through business owner – regardless of the type of business they own – can now claim a full 20 percent deduction on their share of the business’s income up to $315,000 for those filing jointly.
That’s a huge relief for small business owners. The much-needed savings provides more capital to invest in growing, hiring and producing. And because many small-business owners whose taxable income exceeds this threshold will also be able to claim the deduction, the overwhelming majority of small businesses in America are eligible for this benefit.
Coupled with increased thresholds for the alternative minimum tax and estate tax, a doubling of the standard deduction, and a significant increase in the expensing limits, the benefits to small and independent business owners are substantial.
David Cranston owns a small material handling equipment business outside of Pittsburgh with seven full-time and two part-time employees. In testimony before the Senate Finance Committee last week, he detailed just how important the tax law and, specifically, the pass-through deduction have been to his business.
Cranston noted, “I now qualify for a 20 percent deduction on my pass-through income. In real terms, this means I will be able to keep $5,000 to $10,000 a year in my company. This is a big deal to a small business owner like me.”
These savings will allow Cranston to expand into a new product line. Cranston’s business is purchasing new equipment, investing in training, and building a new website to self-fund this new product line.
Cranston is not alone. In the first month after tax reform was enacted, NFIB research notched several milestones – compensation increases for workers were at the highest level in nearly 20 years and a record percentage of owners say now is a “good time to expand.” Small business owners are reporting improved earnings trends with February’s report reaching its second-highest point since 1987. They’re making new capital outlays and increasing inventories.
These data points alone validate the new law’s transformational effects on Main Street. In particular, in NFIB’s March Small Business Economic Trends survey, the fewest number of small-business owners in 35 years reported taxes as their number one problem.
Small businesses make up more than 99 percent of all U.S. businesses. They account for nearly half of the nation’s private sector jobs and almost half of its GDP. When small businesses signal plans to grow, hire and boost pay, it’s good news for the entire economy.
Juanita Duggan is president and CEO of the National Federation of Independent Business, which represents hundreds of thousands of small businesses in all 50 states.