The House of Representatives today passed its tax reform bill, bringing pro-growth tax cuts one step closer to long-awaited passage. It’s certainly long-awaited among small business owners like myself.
According to the most recent CNBC/SurveyMonkey Small Business Survey, paying taxes is the top concern among small-business owners. Tax filing ranks above even regulation, employee health care costs and customer demand. In other words, many job creators worry more about paying their taxes than making sales.
But to understand the virtues of tax cuts, it’s important to recognize the pitfalls of the current tax code. As it stands now, almost all small businesses (95 percent) are taxed not at the corporate rate but rather the top individual rate. This federal rate currently stands at 39.6 percent. State and local taxes can increase the small business tax burden to 50 percent.
I speak from experience. As the president and CEO of Joseph’s Lite Cookies in Florida, I run a family-owned, sugar-free cookie business. We bake more than 12 million sugar-free cookies a day, in addition to supplying other diabetic-friendly products. For each $1 of income my business earns selling cookies and other products, I pay almost 50 cents of it to the government — federal, state and local.
This is money not being reinvested back into Joseph’s Lite Cookies and our local community of Sebastian, a small town near Orlando. I would gladly use a part of our taxed business income to hire new employees and raise wages for my current workers, who diligently serve our hungry customers. But the current tax code, which has not been updated since President Ronald Reagan’s tax overhaul in the 1980s, discourages me from the reinvestment our employees and their families desperately need.
I’m not alone. Recent polling shows a majority of small-business owners would use savings from tax cuts to hire employees, raise wages or open a new location — if not all of the above.
Fortunately, the Tax Cuts and Jobs Act incentivizes them to do so. It creates a new 25 percent top marginal tax bracket for those small businesses that earn more than $260,000 a year in profit ($200,000 for an unmarried individual). Small businesses — excluding law firms and other professional service providers — could allocate 30 percent of their marginal income to this new lower rate.
The bill would also allow for immediate expensing, ensuring small-business owners can write off the total cost of business expense in a given tax year instead of spreading tax savings out over numerous years with a depreciation schedule. In real terms, immediate expensing would allow small businesses to save money on investments in a new oven or more delivery vehicles. This leads to business expansion and job creation down the road.
House Republicans understand the importance of small businesses — and their sustained growth. America is home to nearly 30 million small businesses, employing 60 million workers — half of the U.S. workforce. Small business generates more than $470 billion in exports every year. From your local bookstore to mom-and-pop diners, small business is undoubtedly the backbone of the economy.
The American people are on the side of small business too. Seven in 10 Americans view small businesses favorably. And they’re on the side of a small- business tax cut. According to a Morning Consult/Politico poll, a majority of Americans believe small businesses pay too much in taxes. An even more recent poll shows two-thirds of Americans support a lower small-business tax rate.
The writing is on the wall. Small business needs tax relief to create jobs and grow the economy. The American people support it. Now, as usual, it’s time for Congress to get the job done.