As the make-or-break holiday season approaches for America’s small businesses, Congress is close to delivering long-overdue tax relief. As President Donald Trump has suggested, reducing the tax burden on small business from about 40 percent to 25 percent will act as “rocket fuel” for the economy.
But it’s not a done deal yet. Some lawmakers are worried they’ll have to stay in Washington for Christmas break to pass a tax bill. They ought to worry more about what happens if they don’t. Small businesses and their customers are counting on Congress to do the job.
Fortunately, the Tax Cuts and Jobs Act is a step in the right direction. It lowers the top marginal tax bracket from 39.6 percent to 25 percent for “pass-through” businesses, those small businesses whose income is accounted for on the owner’s personal income tax. The bill will allow those earning more than $200,000 a year in profit for an unmarried individual or $260,000 for a married couple to take advantage of that new rate.
The bill also would allow for immediate expensing, ensuring small-business owners can write off the total cost of a business expense in a given tax year instead of spreading tax savings out over numerous years with a depreciation schedule. In real terms, immediate expensing would allow small businesses to save money on investments and focus on rewarding workers.
Maine is a perfect example of why legislators must act. Over 99 percent of companies in Maine are small businesses, employing more than half of all private-sector workers in the state. Most of them work at small firms with 100 employees or fewer. We’re a small-business-friendly state. This year, we earned an A+ rating in a Thumbtack survey ranking how easy local governments make it to start, run and grow a small business.
But states like ours can only do so much. Federal tax policy wields an outsized influence on the fortunes of small businesses.
The tax code treats most of them as pass-through businesses, which allows astronomical individual rates to be passed on to the businesses themselves — no matter how their balance sheet fares or how many people they employ. Add in state and local taxes, and small businesses can surrender nearly half their annual revenue.
That’s a crushing burden even in boom times. In an economy on the mend, it’s unfair to America’s nearly 30 million small businesses and the hundreds of millions of Americans who rely on them to keep rural, suburban and urban economies chugging along.
Polls show majorities of voters want Congress to prioritize tax legislation that creates and keeps American jobs, and majorities of small businesses want to deliver, investing tax savings into growing payroll, expanding operations and boosting wages. That’s more than a green light to lawmakers; it’s an expectation of results.
In Maine, with its mix of city, country and small-town life, we rely on our small businesses to add jobs. And we’re proud that they do. But like so many states, ours would benefit tremendously from federal tax relief that clears the way for the increased growth we need.
As co-owner of a small-family business, I can attest to the close relationship between small-business owners and their communities. We count on one another as producers, suppliers and consumers, keeping our neighborhoods productive and local economies stable. And let’s not forget that, like R.M. Flagg Food Service Equipment Co., small business is a cornerstone of the community in providing employment and supporting nonprofits.
Unfortunately, today’s unfair tax system makes it harder for small businesses across the country to help the American people through commercial and charitable activity alike. Pass that 25 percent tax rate, and both Congress and small businesses can enjoy a deserved rest this Christmas season.
Stacey Guerin is the owner of R.M. Flagg Food Service Equipment Co. She represents District 102 in the Maine House.
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