NFIB Wisconsin State Director Bill Smith warns that letting a 20% tax deduction for small businesses expire would be “devastating” for the economy.
The National Federation of Independent Business yesterday issued a report highlighting the impact of the small business tax deduction, established by the Tax Cuts and Jobs Act of 2017. The group wants Congress to extend or make permanent the 20% deduction, arguing nine out of 10 small businesses will see a “massive tax hike” if it’s allowed to expire at the end of this year.
“The intent there was to sort of level the playing field between small businesses and some of their large corporate competitors, that was the thinking behind it,” Smith said yesterday in an interview.
He added the tax benefit “really truly does help drive expansion as well as creation of small businesses.”
If the deduction expires, Wisconsin’s small business tax rate would “surge” to 47.25% — including both the federal top individual rate of 39.6% and the state top individual rate of 7.65% — according to NFIB. By comparison, Wisconsin’s C corporation rate would remain at 28.9%, putting small businesses at a disadvantage, Smith notes.
“It’s my understanding that legislation is being worked on as we speak,” he said. “How it comes out is anybody’s guess, which is why we’re trying to convince the Congress to make it permanent. It’s an important tax benefit for small business.”
Wisconsin has more than 481,000 small businesses that collectively employ 1.2 million people, according to the NFIB. If the deduction is made permanent, the group says Wisconsin would see a $1.27 billion increase in state GDP each year for the first 10 years, as well as 25,000 jobs created each year for the same period. Those benefits are estimated to be even larger after 2035.
If the deduction goes away at year’s end, Smith says U.S. small businesses will be less viable as they seek to compete in a challenging economy, as they don’t have as much financial “cushion” to absorb the hit as their larger competitors.
He argued the 20% deduction “has the overwhelming support” of Americans.
“Every poll we’ve done, every poll we’ve seen, this tax deduction enjoys broad support,” he said. “And along with that, overwhelmingly, people believe that it’s had a positive impact on not just America’s economy, but the small business economy. That’s why it’s so critically important that Congress get this message, that we cannot afford to lose this 20% small business tax deduction.”
See the report for Wisconsin.
