Once again, politicians promised economic glory to small-business owners and the public on tax reform, but instead delivered a deficit that has exploded by 17 percent with the bill coming due for all of us.
Late last year, in just two months, President Trump and the Republican Congress rushed through the biggest tax changes in decades. Consequently, the 2018 Tax Cuts and Jobs Act, which gave away $1.5 trillion, wasn’t thoroughly vetted by tax experts nor subjected to public hearings and bipartisan debate.
The result was a complicated law that gave a 40 percent tax rate cut to corporations and large tax cuts to the wealthy. It led to artificially inflated stocks when big corporations used most of their $1 trillion windfall to buy back their own shares — causing many to predict a recession on the horizon.
We now have a giant jump in the federal budget deficit, which reached $779 billion in the fiscal year that ended September 30. By all accounts, this is largely due to corporate tax revenue being down by a third. The deficit is expected to top $1 trillion next year.
What we didn’t get from the tax law was the promised $4,000 income boost per household, more and better paying jobs, a simplified tax code and higher federal tax revenues to pay for the tax cuts.
Wage growth has stagnated, and any wage increase is wiped away by growing inflation. As a result, many homeowners are considering borrowing against their equity to keep up with routine household bills. Low unemployment in today’s economy is driving interest rates higher on credit cards, car loans and mortgage rates. Yet 40 percent of Americans live paycheck to paycheck and can’t cover a unexpected $400 expense.
Small businesses are doing well, but not because of the small, temporary and confusing benefits they received from the tax law. The IRS has yet to finalize guidelines to let small businesses know what benefits might apply to them. As a result, the agency is being hammered by complaints from rental real estate owners, small banks, CPA’s, veterinarians and other small businesses. Compliance with the new tax law is projected to cost a small-business owner up to $2,000, eliminating any tax benefits received.
As for the law giving small businesses more money to hire and give raises, according to a ZipBooks survey of its 100,000 customers, the tax law had no impact on the hiring plans for 88 percent of small businesses. “Clearly our customers are not boosting their hiring plans due to the tax law, as many lawmakers had promised would happen,” said Jaren Nichols, ZipBooks’ Co-founder and CEO.
That brings us back to the big promise that never came to fruition.
The White House and congressional Republicans promised that a top-down approach of hefty tax cuts for corporations and the wealthy would fuel economic growth to the point that the federal treasury would be awash in more revenue than necessary to pay for the tax cuts. The tax law’s supporters cheered on reports that government revenue lethargically ticked up 0.4 percent over the last fiscal year. But that growth came in the final three months of 2017, before the tax law went into effect.
Now leaders on both sides of the aisle are saying we must bring down this unsustainable deficit. Republicans want to cut spending on Social Security, Medicare and Medicaid. But in addition to harming the health and welfare of the most vulnerable Americans, this approach would take money out of our economy that helps small businesses.
Democrats are proposing paring back the 40 percent corporate tax rate cut and using the funds for tax credits for working families and infrastructure projects. These measures would create jobs and consumer demand needed for small-business communities across the country.
It’s time voters head to the ballot box and let politicians know they will not be played for fools. Only a new Congress unafraid to revisit the tax law will be able to put its fiscal house in order, bring down the federal deficit and promote a sustainable economy built from the ground up.