Opinion: Stable tax policy helps small business
Since 1963, the president has officially designated a National Small Business Week to honor the contributions of our smallest job creators, innovators and entrepreneurs, and this week is the official Small Business Week for 2019. While the media will be buzzing with reports of well-deserved awards and accolades for our nation’s hard-working small business owners, it is also a good time for state and federal policymakers to reflect on the tax policies that have encouraged stellar economic results for small business.
In 2011, Michigan ended decades of punitive and confiscatory tax policy that hobbled the ability of small business to grow and invest. Since then, small business has led the way in the dramatic recovery of our state’s economy that has resulted in record job creation, rising personal incomes, and even more money in tax revenues to the state.
In 2017, Congress passed the Tax Cuts and Jobs Act which also seeks to leverage the power of small business to continue the national economic recovery. That legislation created the Small Business Tax Deduction, a 20% deduction on business income that will save small businesses across the country an estimated $414 billion in 10 years. The federal tax changes also encouraged small businesses to make purchases, like buying new equipment or bigger buildings, by broadening IRS expensing rules. And the law spared thousands of small business owners from the costly federal death taxes by exempting many smaller estates.
When a small business owner dies, death taxes often cause the business to close when the heirs can’t afford the tax bill. But federal tax reform changed that. As a result, almost all of Michigan’s 830,000 small businesses are better off this tax season on their federal returns than they were last year.
The benefits from tax policy that incentivizes small business can be seen in a recent report from the Anderson Economic Group that studied small business taxes in Michigan. The report, commissioned by NFIB, examined data from the 2018 Anderson Economic Group Annual Business Tax Burden Study.
Findings from the report indicated that Individual income taxes on so-called “pass-through” income from sole proprietorships, partnerships, and subchapter S corporations (these are primarily small businesses) more than doubled from $392 million in 2010 to $843 million in 2016. Revenues in 2018 are expected to exceed $850 million. Much of this increase in tax revenue to the state can be directly attributed to Michigan’s pro-small business tax changes.
This “double-barreled” tax policy from both federal and state tax changes will result in an economic surge of small businesses growth and investment that is good news for Michigan. Small business owners strengthen a community; they support local charities; they hire your neighbors and friends, and keep Main Street thriving.
Even while we are celebrating small business success this week, there are dark clouds on the horizon that threaten to end Michigan and the nation’s small business revival. In Michigan, the governor has already proposed creating a new small business tax on top of the taxes small businesses already pay and in Washington, many of the beneficial tax changes for small business will expire in less than eight years.
While NFIB continues to fight against the new tax on small business in Michigan, a bipartisan bill called the Main Street Tax Certainty Act has been introduced in Congress that would make sure that small businesses permanently benefit from federal tax reforms. The Main Street Tax Certainty Act will create stability and small businesses will continue to grow and prosper all over the state of Michigan. It is important that Congress pass this legislation.
Charles Owens is the state director of NFIB, a small business advocacy organization.