After months of speculation, Senate and House Republicans have now introduced their respective tax bills. (And the House of Representatives has passed one.) Both versions slash individual rates and allow Americans to keep more of their hard-earned money. With President Trump’s leadership, tax cuts are still expected to pass by the end of the year.
But there is plenty of time between now and then. As Congress decides on a final tax package, they must remember two words: Small business. Few constituencies are more desperate for — and deserving of — tax relief than small business owners, who create two-thirds of America’s net new jobs.
Under the current tax code, the overwhelming majority of small businesses (95 percent) are taxed at the highest individual marginal tax rate. This federal rate stands at a whopping 39.6 percent. In my home state of Michigan, state and local taxes can raise the small business tax burden to 50 percent.
That’s right: 50 percent. Imagine running a business and seeing half of your income fund government programs instead of new hiring and wage increases. As an advocate for small businesses in the construction industry, I encounter countless job creators who are hindered, not helped, by anti-growth public policies.
Republican tax proposals move us in the right direction by encouraging business expansion and job creation. The Tax Cuts and Jobs Act, for example, creates a new 25 percent top marginal tax bracket for small businesses which 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. Immediate expensing allows small businesses to save money on investments in new equipment. This is especially beneficial to construction firms whose livelihood depends on heavy machinery.
The benefits are clear. The Tax Cuts and Jobs Act would create an estimated 975,000 full-time-equivalent jobs over the next 10 years. A typical middle-income family would see a $2,600 gain in annual after-tax income, making it easier to spend and save. In Michigan alone, job-seekers would be exposed to nearly 30,000 new career opportunities, while the average Michigan family would have thousands more dollars in the back account.
The best way to help the U.S. economy is to help small business. Nationwide, there are nearly 30 million small businesses, employing roughly 60 million workers — half of America’s workforce. Small businesses make up 99.9 percent of all U.S. companies, generating over $470 billion in exports every year. They are the engine that makes our economy go.
When small businesses succeed, their employees succeed. Millions of American families depend on these firms — not large corporations — for financial security. Small business also forms the social backbone of many local communities, whether it’s a mom-and-pop bakery or your local bookstore.
Any Republican tax bill should guarantee tax relief for all small businesses — regardless of industry. The best way to help American workers is to help the job creators who employ them.
Jimmy Greene is president and CEO of the Associated Builders and Contractors, Michigan chapter.