USCC One Pager Small Business Tax Stories Digital Final
Published
July 30, 2024
When Main Street businesses have a competitive tax code, local economies grow and prosper, and workers across the country benefit from higher paychecks and more job opportunities.
In December 2017, Congress passed the Tax Cuts and Jobs Act (TCJA), the most comprehensive tax reform legislation since 1986. The TCJA significantly reduced and simplified the federal income tax burden for American families and workers and modernized the taxation of business income. However, many of the TCJA's key reforms were temporary and are set to expire at the end of 2025.
Recent polling from the Chamber shows that a majority (80%) of voters expressed concern that increasing taxes on U.S. businesses will lead to higher prices. Ninety-three percent (93%) think American families and businesses are already paying enough in taxes.
The Chamber recently spoke with several small business owners on our Small Business Council about the impact of the 2017 tax reforms and what’s at stake if they’re allowed to expire at the end of 2025.
What does a competitive tax code mean for small businesses?
A competitive tax code means small businesses like Kaddas Enterprises, a plastic fabrication company in Salt Lake City, Utah, can invest in their operations and workforce.
“For us to make an investment in robotics, for example, as a small business, it's over a $1 million dollar investment. That is substantial and having a tax policy that helps us write that off quickly and use accelerated depreciation helps us reinvest back into our organization,” says CEO Natalie Kaddas.
Traci Tapani, co-president of sheet metal workshop Wyoming Machine Inc. in Stacy, Minnesota, says her small businesses needs a competitive tax code that provides certainty for planning business operations.
“I need to plan and know how much money I'm going to be paying the federal government so that I can make decisions about what I can invest in my business to continually improve it,” says Tapani. “As a small manufacturer, I just can't keep spending and spending to cover unplanned expenses. It makes business harder to do.”
Why should Congress extend the 2017 tax reforms?
Larry Kidd, president and CEO of :hire, a staffing agency in Columbus, Ohio, says taking away tax cuts hinders future growth.
“I'm not concerned about competition. I'm not as concerned about the economy; I'm concerned about government regulation and overtaxing. Because when they take that kind of tax cut away from us, it will substantially decrease our ability to grow,” says Kidd.
Some businesses, like Kaddas Enterprises, have already seen the effect of expiring tax cuts.
“Some of them [tax reforms] have already expired. Our tax liability has gone up by almost 30%, and that limits our ability to invest in additional jobs, make new products, and innovate in new areas of opportunity,” says Kaddas. “I am worried about 2025 and the additional tax cliffs that we're facing if something drastically different isn’t done quickly."
The 2017 tax reforms created opportunity for growth and investment in businesses across the country, and business owners are worried a roll back now would hamstring their ability to capitalize on important investments—including those made possible by other federal legislation to modernize America’s infrastructure and bolster domestic research and development and manufacturing supply chains.
“Think about the Infrastructure Act and the CHIPS Act, which are important legislation that can drive manufacturing forward in the United States,” says Tapani. “If we start piling more taxes on top of that, and extra expenses on whatever front, it's going to be hard for us to take advantage of these once-in-a-lifetime investments in manufacturing.”
What is the 20% deduction for pass-through businesses and why is it important?
In 2017, as part of the TCJA, Congress passed a permanent reduction to the corporate income tax rate from 35% to 21%. And to ensure that pass-through businesses like sole proprietorships, partnerships, and S corporations weren’t put at a tax disadvantage relative to C corporations, Congress created a new 20% deduction for qualified business income.
Unlike the lower corporate rate, the 20% deduction for pass-through businesses is temporary and scheduled to expire at the end of 2025. Small business owners like Kidd say those who feel the impact of this deduction the most are the smallest businesses because they have the least number of employees.
“With high inflation, high interest rates, high cost of labor, and difficulty in finding people, this is not the time to let this [20% pass-through deduction] expire. We have to get this pushed through. We have to extend it, and frankly, we need to make it permanent, " says Kidd.
Traci Tapani says the 20% pass-through deduction is important for businesses she works with in the manufacturing supply chain.
“We work as part of a supply chain that supplies larger manufacturers in Minnesota and some other states throughout the country. It's a mix of small businesses and large businesses working together to create a supply chain. So, I know that for many of my customers and suppliers that the 20% pass-through tax deduction really made a difference.”
To learn more about the Chamber’s advocacy in support of a pro-growth, globally competitive tax system, click here.
USCC One Pager Small Business Tax Stories Digital Final
About the authors
Rachel Ledbetter
Rachel Ledbetter is a director of policy and political communications at the U.S. Chamber of Commerce.
