Granted, that it’s been less than three months since the new US tax laws benefiting small business have gone into effect, and so the title of this article is largely a bold statement this early on. However, early evidence does indicate a window on what is likely to come. Sometimes statistics – even very early ones – are just a confirmation of what logic already dictates will happen.
It’s mostly been large corporate business coverage that has occupied the press on tax cuts, and the effects on small business have, for the most part, been overlooked. However, over half of the people in the US are employed by a small business, so it’s worth noting that small businesses really matter. So, let’s start by describing what benefits there are for small business, and how the new tax code actually favors them more than big business (which is quite a change from the past big business special interests).
The biggest positive developments include a decrease in corporate tax to 21% (just like the big guys), a deduction on pass through taxes to small business owners, and an allowance for many capital expenditures to have highly accelerated depreciation (100% for many things). What it means is that small businesses now have an effective tax rate lower than big businesses. They also are rewarded in being able to write off on expenditures of a lot of property and equipment at a much greater rate, therefore encouraging a ton of such expenditures over the next five years (when the tax benefits begin to phase out). There are removals of these advantages at certain levels through allowable deductions on interest and such, but those limitations effect a fairly small number of businesses. Most small businesses have a big incentive over the next few years to buy a lot of business related equipment and property intended to grow and expand business.
I understand people don’t get very charged up about helping out small business owners, but they do understand that small businesses also spend money, and that helps us all. So far, the early signs of these changes benefiting the economy seem very promising. Forecasts for capital expenditures for 2018 have risen to about a 7% increase over last year, despite a small dip in January. Surveys of small business owners’ outlook on the economy are the highest they have ever been. And, SBA loans have increased from January 1 to March 16 of this year by 8.5% – an early indicator of increased borrowing by small businesses to take advantage of opportunities to make buys on capital goods. These goods will increase production rates and expand businesses, which also means an increase in hiring.
Small business has a way of sort of sneaking in changes in the economy without people really noticing or understand where the change is coming from. People don’t pay a lot of attention to what happens with small business, because all the talk from media is focused on big business. Mention a big business that gobbles up its competition and people go crazy talking about anti-trust. Mention the words business and politics, and people go crazy talking about politicians selling out to corporate interests. But, mention anything about small businesses and people just yawn. They are the stealth engines driving more than half the economy that nobody talks about. When we get to the end of 2019 and the economy is doing very well, people will blame it all on a decrease in the corporate tax rate, but the real story will be how a change in small business tax code caused a boom in small business.
Now, not all small business is benefiting. Service intensive ones (lawyers, accountants, doctors, etc.) don’t get all these benefits, and R&D expenditures get a far less favorable treatment than before, and there’s no more reaching into past years to write off current losses. These things are a big negative to start-ups and businesses that do a lot of development to get off the ground. There may be a slight squelching of many new companies coming to market but may be offset by more entrepreneurs that desire to get into more traditional types of businesses.
It’s great that the Trump administration and the GOP have done something right out of so many wrongs. For the first time, they have recognized small business as a big driver in the economy, despite lack of interest in the public at large. In a world where only the things that get people fired up get the attention of politicians, it’s admirable that they chose to help a less represented group. It’s been a very long time since government did anything to help small businesses. They are the ones who receive the brunt of most of the negative things that come out of government’s business policy.
Small businesses are forced to collect all our taxes, they have less resources to fight off regulations, are rarely exempted from them (like many big businesses), and they rarely receive tax advantages. Small businesses don’t have the resources to buy favorable attention. It’s nice that, for once, government has done the right thing without being paid off. Granted, I’d prefer to see no corporate taxes, but I always accept steps in the right direction.