Every hard-working American feels the pain of taxes. Just the process of filing taxes can be frustrating, confusing and costly. For small business owners, the complexity is an incredible burden.
Last year, the National Federation of Independent Business asked our members to rank their top problems and priorities. Half of the top 10 problems were related to taxes. Small businesses struggle with federal taxes, tax complexity, frequent changes in federal rules, property taxes and state taxes.
President Trump and Republicans in Congress have vowed to make tax reform one of their top priorities this year. Small business owners are extremely pleased by the president’s plan, which slashes tax rates, simplifies the code and puts Main Street firms on an even playing field with large corporations.
Since November, the NFIB Small Business Optimism Index, which measures small-business sentiment and economic activity, rose to the highest level since 2004 on the national level. But the rise in optimism was built on the expectation that the new administration, working with Congress, will reduce the burden of taxes, regulations, and sky-high health care costs.
Small business is an important piece of the American economy. Over the past two decades, small businesses created two-thirds of net new jobs. Nearly half of private sector workers are employed at a small business. Small businesses represent 99.7 percent of all firms in the U.S. In California, small businesses account for 49.2 percent of all jobs.
During the Obama administration and even to this day, there are some in Washington who think that only corporate tax rates should come down. That would be a grave mistake.
Three-quarters of small businesses are “pass-through entities” that are taxed at the individual rate. Ignoring these businesses in tax reform, would not only leave small business behind but could actually hurt small firms that are important to their communities.
Small businesses are the ones that fund the local sports teams. Small business owners know their employees and work with them during difficult times. Small businesses get passed from generation to generation. Small business owners aren’t just thinking about the bottom line.
For many small businesses, the main competitors are big corporations. NFIB members don’t want special treatment; they just want to compete on a level playing field.
When it comes to taxes, corporations already have certain advantages. Big companies employ a legion of accountants, lawyers and compliance specialists to make sure they are paying the lowest rates. Multi-national companies keep money overseas away from the IRS.
Right now, there is a gap between the highest corporate tax rate and the highest individual rate. That means some smaller businesses pay a higher share of their income than big corporations. If corporate tax rates come down and individual tax rates stay the same, that gap would widen. Wall Street would have another advantage over Main Street.
Companies large and small can benefit from tax reform if we get parity in tax rates. Fair tax reform wouldn’t give businesses of one size or another an advantage. During the campaign, President Trump committed to parity. If he works to keep this promise, he could unlock small business growth that would help him keep his promises about jobs and economic growth.
The NFIB Optimism Index shows that small businesses are primed to grow. What they need to make that happen are new resources, not just confidence. Lowering tax rates and simplifying the filing of taxes could give small business owners more money in their pockets and more time to focus on their businesses.
Tax reform must start with small business.
For many small businesses, the main competitors are big corporations. They don’t want special treatment; they just want to compete on a level playing field.
Tom Scott is state executive director for NFIB California, which represents 22,000 small business owners across the state.