Opinion poll: Small businesses support bottom-up tax reforms

Introduction

Lawmakers in Washington, D.C. are considering tax reforms as the 2017 tax cuts in the Tax Cuts and Jobs Act (TCJA) are set to expire in 2025, and potential changes will have profound impacts on small businesses. Currently, businesses that are not C-corporations can exclude 20% of their pass-through business income from federal income tax. As Congress debates the future of this tax deduction and other provisions from TCJA, it’s important that they take into consideration the perspective of America’s job creators. 

Small Business Majority’s new national opinion poll of small businesses reveals that they believe they’re not competing on a level playing field in the federal tax system with large corporations. While many small business owners are aware of and take advantage of the 20% pass-through deduction, the benefits of this deduction are skewed in favor of a small number of the wealthiest businesses (4.5% receive almost 70% of the benefit). As a result, they support several reforms, including a fixed standard deduction. Additionally, entrepreneurs support maintaining increased IRS funding so that they can properly execute their mission to improve customer service and increased audits of wealthy taxpayers and large corporations. This survey is part of Small Business Majority’s broader effort to understand the various ways in which tax reforms would impact or present opportunities for small businesses.

While various proposed tax reforms are being considered, Congress must take the smallest businesses’ needs into account. Implementing tax policies that provide bottom-up benefits to small businesses through equitable deductions and tax rates is critical to their success. Moreover, additional funding for the Internal Revenue Service (IRS) will help modernize its services for small business owners and fairly enforce the federal tax system.

Key findings

• Small businesses believe that the tax system favors large corporations, with 82% agreeing and 54% strongly agreeing. Three-quarters also agree that wealthy individuals and large corporations don’t pay their fair share of taxes.

• Small businesses take advantage of the 20% pass-through deduction, with 64% of non-C-corporations claiming the deduction in their most recent tax filing. Fewer BIPOC-owned businesses (59%) have claimed the deduction compared to white-owned businesses (74%). 

• However, small businesses are open to proposed changes, with 53% supporting a proposed change to implement a fixed standard business deduction that would allow business owners to deduct the first $25,000 in net business income each year. Only 22% oppose the proposal.

• Small business owners support reforms that would make wealthy individuals and large corporations pay more in taxes. A majority of small businesses (52%) support increasing the corporate tax rate to 28%, and 54% of small business owners would support an increased capital gains tax.

• Half of the respondents agree that the IRS needs continued additional funding, and a large majority believe that additional funding is needed to properly audit large corporations (82%) and wealthy taxpayers (79%).