OPINION:
The Tax Cuts and Jobs Act marked its fifth anniversary over the holidays. While this law was a significant win for Main Street, the looming expiration of important tax benefits is challenging small-business owners’ ability to plan. They are increasingly worried that one of the law’s most important provisions, the “Small Business Deduction,” is more than halfway to expiration, and there’s no urgency to extend it. The expiration would result in economic consequences such as lower optimism and less investment, which is why Congress should make the deduction permanent in the 118th Congress.
The Small Business Deduction — Section 199A – empowered “pass-throughs” — the S corporations, LLCs, sole proprietorships and partnerships that account for the overwhelming majority of small businesses — to deduct up to 20% of their business income on their tax returns. In 2019, 21 million taxpayers claimed this tax deduction. They plowed their tax savings right back into their workers, businesses and communities. It’s a reason why small businesses helped drive the economic boom before the pandemic.
This historic tax relief gives small businesses a better chance to compete with big businesses, which received a permanent rate decrease in the same law. The corporate tax cut is permanent, while the small-business relief is temporary. The Small Business Deduction expires after 2025, which is right around the corner for a Main Street small-business owner who’s trying to plan for the long haul.
Manufacturers, retailers, restaurants, contractors, garage startups and small businesses of all kinds are much less likely to make investments or pursue their expansion plans with a substantial tax increase on the horizon. Small businesses typically have thin margins and limited reserves, so any tax hike will be immediately felt. Making the Small Business Deduction permanent will help these job creators continue to prepare for the future.
To underscore the importance of permanency for this critical deduction, the National Federation of Independent Business (NFIB) recently launched a national campaign featuring members’ tax stories. Brian Halbert, co-owner of Devil’s Due Distillery in Kearneysville, West Virginia, made clear that with the Small Business Deduction’s upcoming expiration, he’ll find it much harder to “hire more people, expand our facility, [and] help support our local economy.”
Similarly, at Coal River Coffee in St. Albans, West Virginia, owner Rachel Ervin told us the deduction let her “increase hourly wages” and “invest in more equipment,” while her husband, Michael, says it’s a big part of why the business has become such a pillar of their community. With the deduction scheduled to expire, it’s getting harder to make similar moves.
Nationwide, more than 80% of NFIB’s members say the deduction is important. We often hear from Congress extolling how small businesses are the backbone of America’s economy. To demonstrate their appreciation, our representatives and senators should give small businesses the certainty and stability they deserve this Congress instead of allowing tax uncertainty to stall the engine of the economy in the coming years.
Small businesses have been calling for this certainty since the Tax Cuts and Jobs Act was signed into law. As the fifth anniversary of the enactment passes, Congress should realize it’s not too early to make the Small Business Deduction a permanent part of the tax code, and it’s not too late to give Main Street the same permanent relief that Wall Street received.
• Courtney Titus Brooks is director of federal government relations at the National Federation of Independent Business.
Please read our comment policy before commenting.