Opinion

Pass Small Business Tax Reform Now

(Shutterstock/Brian A Jackson )

Alfredo Ortiz President, Job Creators Network
Font Size:

While tax reform languishes, all Americans pay. Washington needs to act quickly, but it also needs to get the policy right.

Reducing America’s tax burden is the fastest way to boost real wages, which have been stagnant for decades. President Trump’s tax plan would put hundreds of dollars a month back in the pockets of working and middle-class Americans, who are struggling under the weight of inflated housing, healthcare, and childcare costs. But if his comprehensive tax reform can’t pass Congress, then Republicans should pass more tailored tax reform now that would still provide relief to tens of millions of Americans while being nearly impossible for legislators to oppose.

The specific reform with the most bang for the buck? Small business tax relief.

Small businesses, which generally structure as so-called pass-throughs that are taxed at the individual rate, pay a top marginal federal tax rate of 40 percent. Including state and other taxes, this rate often exceeds 50 percent. According to a recent Job Creators Network poll of small business owners, 70 percent of respondents said this over-taxation threatens their viability. And according to a new CNBC poll, taxes are the number one concern of small business owners.

The impact of this tax burden is demonstrated by the data. A recent JPMorgan Chase study shows that small business expansion is negligible. There has been a decades-long slowdown in new business creation. And the share of businesses less than a year old has plummeted by one-third and their employment share by half since the 1980s.

Trump’s tax plan would provide such relief by lowering the small business tax rate to 15 percent. Reps Randy Hultgren (R-IL) and Jason Smith (R-MO) have a similar plan that would drop the rate on the first $150,000 in earnings to 12 percent and to 25 percent on all income above that threshold. Either reform passed as a standalone bill would strengthen the country’s small business backbone by allowing more capital to expand, raise wages, and hire more employees.

While the politics of tax relief is easy – what Republican or Democrat in their right mind would oppose such a Main Street provision – the policy, as we saw in Kansas, can be tricky. What does small business tax relief look like?  It starts with a specific rate for small business income, just as there is a specific rate for corporate income.

This raises the tough question of how to define small business income and how we should treat passive and active owners. Just like the dividend rate applies to all of the dividends that a shareholder receives from a large corporation, passive owners of a pass-through business should benefit from the small business rate. Similarly, an active owner should get the business rate on whatever portion of their income is related to the return on the capital they invested in the business. Whatever “labor” the active owner puts in, should be taxed as such – as wage income.

But some in Washington haven’t been willing to compromise on what constitutes wage versus capital income – meaning no one is getting the tax relief they deserve. However, there is a solution: agree to a simple mechanical rule that is easy for small business owners to understand and easy for the IRS to administer. Now, just as in life, every rule will have its exceptions and the IRS is well equipped to handle such exceptions. A fair formula would benefit the vast majority of America’s small businesses – and prevent the US from repeating the mistake in Kansas, where there was no distinction made between business and wage income.

Lastly, the pursuit of utopia should not kill this once-in-a-generation opportunity to reform our tax laws. The headline tax rate for small businesses doesn’t have to be the exact same as it is for corporations. While it would be nice, it’s not necessary for successful reform. The reality is small businesses don’t pay a second layer of taxes the way corporate profits are taxed when they are distributed as dividends.

If Washington and America’s small businesses could rally around these common sense proposals, real economic activity would be unleashed across America’s heartland.

Alfredo Ortiz is President and CEO of the Job Creators Network

PREMIUM ARTICLE: Subscribe To Keep Reading

Sign up

By subscribing you agree to our Terms of Use

You're signed up!

Sign up

By subscribing you agree to our Terms of Use

You're signed up!
Sign up

By subscribing you agree to our Terms of Use

You're signed up!

Sign up

By subscribing you agree to our Terms of Use

You're signed up!
Sign up

By subscribing you agree to our Terms of Use

You're signed up!

Sign Up

By subscribing you agree to our Terms of Use

You're signed up!
Sign up

By subscribing you agree to our Terms of Use

You're signed up!
Sign up

By subscribing you agree to our Terms of Use

You're signed up!
BENEFITS READERS PASS PATRIOTS FOUNDERS
Daily and Breaking Newsletters
Daily Caller Shows
Ad Free Experience
Exclusive Articles
Custom Newsletters
Editor Daily Rundown
Behind The Scenes Coverage
Award Winning Documentaries
Patriot War Room
Patriot Live Chat
Exclusive Events
Gold Membership Card
Tucker Mug

What does Founders Club include?

Tucker Mug and Membership Card
Founders

Readers,

Instead of sucking up to the political and corporate powers that dominate America, The Daily Caller is fighting for you — our readers. We humbly ask you to consider joining us in this fight.

Now that millions of readers are rejecting the increasingly biased and even corrupt corporate media and joining us daily, there are powerful forces lined up to stop us: the old guard of the news media hopes to marginalize us; the big corporate ad agencies want to deprive us of revenue and put us out of business; senators threaten to have our reporters arrested for asking simple questions; the big tech platforms want to limit our ability to communicate with you; and the political party establishments feel threatened by our independence.

We don't complain -- we can't stand complainers -- but we do call it how we see it. We have a fight on our hands, and it's intense. We need your help to smash through the big tech, big media and big government blockade.

We're the insurgent outsiders for a reason: our deep-dive investigations hold the powerful to account. Our original videos undermine their narratives on a daily basis. Even our insistence on having fun infuriates them -- because we won’t bend the knee to political correctness.

One reason we stand apart is because we are not afraid to say we love America. We love her with every fiber of our being, and we think she's worth saving from today’s craziness.

Help us save her.

A second reason we stand out is the sheer number of honest responsible reporters we have helped train. We have trained so many solid reporters that they now hold prominent positions at publications across the political spectrum. Hear a rare reasonable voice at a place like CNN? There’s a good chance they were trained at Daily Caller. Same goes for the numerous Daily Caller alumni dominating the news coverage at outlets such as Fox News, Newsmax, Daily Wire and many others.

Simply put, America needs solid reporters fighting to tell the truth or we will never have honest elections or a fair system. We are working tirelessly to make that happen and we are making a difference.

Since 2010, The Daily Caller has grown immensely. We're in the halls of Congress. We're in the Oval Office. And we're in up to 20 million homes every single month. That's 20 million Americans like you who are impossible to ignore.

We can overcome the forces lined up against all of us. This is an important mission but we can’t do it unless you — the everyday Americans forgotten by the establishment — have our back.

Please consider becoming a Daily Caller Patriot today, and help us keep doing work that holds politicians, corporations and other leaders accountable. Help us thumb our noses at political correctness. Help us train a new generation of news reporters who will actually tell the truth. And help us remind Americans everywhere that there are millions of us who remain clear-eyed about our country's greatness.

In return for membership, Daily Caller Patriots will be able to read The Daily Caller without any of the ads that we have long used to support our mission. We know the ads drive you crazy. They drive us crazy too. But we need revenue to keep the fight going. If you join us, we will cut out the ads for you and put every Lincoln-headed cent we earn into amplifying our voice, training even more solid reporters, and giving you the ad-free experience and lightning fast website you deserve.

Patriots will also be eligible for Patriots Only content, newsletters, chats and live events with our reporters and editors. It's simple: welcome us into your lives, and we'll welcome you into ours.

We can save America together.

Become a Daily Caller Patriot today.

Signature

Neil Patel