Small Businesses Plan to Invest Tax Savings in Wage Increases, Hiring According to NFIB Survey

Date: May 17, 2018

Washington D.C. (May 17, 2018)  ̶  Small and independent business owners overwhelmingly believe the recently passed Tax Cuts and Jobs Act will have a positive effect on their businesses and have plans in place to invest in hiring and increase employee compensation, according to a recent survey conducted by NFIB released today. The detailed survey provides a baseline reading on small business owners’ initial responses to the tax reform law. Among the findings, the survey found the creation of the up to 20 percent small business income tax deduction provision (Section 199A) is viewed as important to most small business owners.

“The data in this survey provides a sound gauge on how small business owners are responding to the tax law. Small business owners across the country are expressing optimism about the future of their companies and are enthusiastic about the tax law,” said Brad Close, NFIB’s Senior Vice President, Public Policy. “The Section 199A pass-through deduction is proving to be a major factor. As small business owners learn more about the provision, we expect optimism and growth to increase further.”

Overall, small business owners are bullish about business and the impact of tax reform:

  • The vast majority (76 percent) of small business owners believe the current business climate is heading in a positive direction.
  • Three-fourths of small business owners believe the tax law will positively impact their business.
  • Eighty-seven percent think the new tax law will have a positive impact on the general economy.

Small business owners anticipating a lower tax bill next year plan to allocate the extra money across a number of business activities. More than half (51 percent) of small business owners expect to pay less in federal income taxes next year. Among these respondents:

  • Forty-four percent plan to increase employee compensation.
  • More than one-quarter (27 percent) plan to use the extra savings to add employees.

The fact that owners plan to add employees is to be expected as 35 percent of owners reported unfilled job openings in April 2018, according to the NFIB Small Business Economic Trends index, the highest reading since November 2000.

Eighty-four percent of small businesses in this survey are structured as “pass through” businesses (S corporations, LLCs, sole proprietorships, or partnerships). Discussion of the Section 199A provision, an up to 20 percent deduction for these pass-through businesses, provokes a strong, positive reaction among small business owners:

  • Eighty-four percent of small business owners say the creation of Section 199A is important, with 55 percent saying the provision is very important and another 29 percent considering it somewhat important.
  • Eighty-five percent say the changes to the individual income tax brackets and rates are an important provision in the tax law, with 45 percent of small businesses saying they are very important and another 40 percent saying they’re somewhat important.

Although there was discussion during the tax reform debate on whether tax code changes would increase the rate of business owners changing the legal structure of their businesses, very few plan to change their businesses’ legal structure over the next one to three years in response to the new tax law. Only four percent plan to do so with about 83 percent planning no change.

“Small business owners continue to learn more about the law, but it’s clear that the Section 199A provision and reduced individual rates are important for small businesses, with the 20 percent deduction particularly important for smaller firms,” said Close. “The reduction in taxes is freeing up resources to support their businesses.”

This survey was conducted with a random sample of 20,000 NFIB members between February and April 2018. The survey was conducted by mail, with an initial mailing and a follow-up mailing 3 weeks later. NFIB collected 2,544 usable responses, a 13 percent response rate. Ninety-five percent of respondents were the owner of the business, 4 percent a manager. NFIB membership spans most major industry categories.

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