Policy Agenda: Tax Policy
For too long, our nation’s tax system has benefited the wealthiest Americans and large multinational corporations at the expense of small business owners. Indeed, Small Business Majority’s polling found 7 in 10 small business owners believe their business is harmed when big corporations use loopholes to avoid taxes, and 85% feel the tax code unfairly benefits large corporations over small businesses.
That’s why we’re concerned by the Tax Cuts and Jobs Act. We believe the law will hurt small businesses and the economy because it will increase the deficit by $1.5 trillion by lowering the corporate rate without getting rid of corporate tax loopholes that give large businesses an unfair advantage. The tax cuts are structured in a way that is convoluted and benefits those at the top more than lower-income business owners, with the majority of benefits going to the largest 2.6% of pass-through business entities. What’s more, the enactment of a “territorial” corporate tax system creates an even more unequal playing field for small businesses because it allows a few multinational corporations to funnel their profits to the lowest-taxation foreign jurisdictions—a provision small firms are unable to take advantage of.
If policymakers are serious about wanting to level the playing field for small businesses, they need to implement policies that will help all entrepreneurs, rather than giving tax breaks to those who need it least. This must include the following:
- Ensuring any additional changes to the corporate and personal tax codes made as part of technical fixes to the new law have a significant, direct benefit to small businesses and the self-employed.
- Monitoring the effects of the new tax cuts enacted under the new law to ensure wealthy individuals are not abusing the law’s new deductions for pass-through entities.
- Closing inefficient corporate loopholes that put small businesses at a disadvantage and add to the deficit. An example of a loophole that could be closed is carried interest, which only benefits hedge fund managers by allowing them to pay taxes on ordinary income at special lower capital gains rates.
- Ensuring parity between online and bricks-and-mortar businesses with a reasonable and fair Internet sales tax solution.
- Simplifying and expanding the small business tax credit created by the Affordable Care Act.
- Making the New Markets Tax Credit permanent. This tax credit, which is set to expire at the end of 2019, has helped attract more than $60 billion in private sector funding to build businesses in economically-distressed communities across the United States.
- Passing healthcare tax equity for the self-employed so that freelancers can deduct their healthcare expenses from their FICA tax obligations—just like other business entities.
- Increasing limits for deducting start-up and organizational expenses from the current $5,000 levels to $10,000 each.
- Allowing very small firms to use a simplified method of cash accounting.
- Creating more tax incentives for angel investors. More than half of states offer tax incentives for angel investors. Federal support for these efforts would encourage more local and state governments to consider such measures. Additionally, lawmakers should pass the Invest in Innovative Small Businesses Act, which would create a tax credit for investing in early-stage startups operating in a high-technology field during the pre-revenue stage.
- Opposing state and local tax policies that amount to “giveaways” to large corporations at the expense of investing in Main Street small businesses in local communities.
- Extending renewable energy tax credits that can benefit small businesses. Businesses that operate facilities that produce electricity from wind and some other renewable resources can choose either the Energy Investment Tax Credit or the Production Tax Credit. These credits are set to expire in 2021 and 2019 respectively.
- Allowing self-employed entrepreneurs to buy into the Earned Income Tax Credit.