Published By Janet Gershen-Siegel at December 13, 2017
As we sift through the news and the opinions about the proposed Trump tax plan, one question small business owners should be asking is: how does this affect my business? Will this plan raise or lower my small business taxes?
Note: as of the writing of this article, the president’s tax reform proposal had not yet been passed. It is also a rather large bill and it may be some time before all of the details are unpacked, particularly as the House and Senate versions will need to be reconciled.
Currently, sole proprietors, freelancers, unincorporated businesses, and pass-through businesses are taxed at higher individual rates. The plan proposes to reduce their rate to 15%. The corporate tax rate would also be reduced to 15% under the president’s proposal.
This month, CNBC released the results of a survey they took regarding small business’s attitude toward the president’s tax proposals.
The survey, taken in April of this year, was taken by over 2,000 small business owners but it was only released in December.
According to the survey, about one quarter of all participants said taxes were their biggest concern, with regulation coming in second. Customer demand and the costs surrounding employee health care were also cited.
Over 40% of all respondents said they felt the proposed tax plan would benefit them. However, another third said they felt it would have no effect on them.
Some respondents felt the current proposal would not be passed in its current form and, instead, would serve more like the opening salvo in negotiations. Given the climate in Washington, that seems a logical conclusion to draw. According to Senators Bernie Sanders and Elizabeth Warren, in a November Boston Globe article, the plan would generally favor the larger banks, rich foreign investors, and multinational corporations. Small business owners were not necessarily in agreement with the Senators’ assessment.
The survey also measured confidence, and found it to be flattened. The survey’s Small Business Confidence Index stayed at 57, unchanged from the previous quarter. This figure means more small business owners are optimistic than those that are pessimistic about the future direction of their business. The figure strongly correlated to both support for President Trump and also beliefs in the passing of the president’s tax reform plan and beliefs that business tax levels would decrease in 2018.
But it pays to dig deeper into the numbers, as they show the same kind of gulf which a number of other types of opinion polls have been showing in the United States for the past several years. The gulf is clearly marked: 33% of business owners believing that taxes will go down in 2018 also had a confidence level of 70, whereas the 31% expecting higher taxes had a confidence level of only 44.
For the 53% of respondents who support the president, their confidence index rose from 65 to 67. But for the respondents who disapprove of how the president is handling this, their confidence index dropped from 49 to 47 during the past quarter.
A good 55% of small business owners surveyed supported the passing of a tax bill. However, the number of employees in a small business directly correlated with belief that the bill would lower company taxes. Just over half of all owners of businesses with 50 or more employees felt their taxes would go down under the plan, while only 30% of owners of small businesses with zero to four employees thought their taxes would be reduced under the president’s proposed plan.
The difference was less dramatic when looking at which small business owners felt they would be paying more in taxes. A third of owners of businesses with zero to four employees thought their taxes would be increased under the plan, whereas only 22% of small business owners of companies with 50 or more employees felt the same.
Overall, without taking size into account, the numbers were close to evenly split, between business owners believing their taxes would go up (31%), go down (33%), or stay about the same (33%).
If the tax plan passes, one of the bigger changes affects everyone – not just small business owners. The proposal to reduce the number of tax brackets from seven to four should benefit anyone who prepares their own tax returns. Even for people and businesses which use outside services, a simpler tax code could mean, at the very least, a faster turnaround on getting tax returns out the door. This could be particularly beneficial for anyone paying taxes on a quarterly basis.
For small business owners who are looking to sell – and, in particular, members of the baby boomer generation looking to retire – the proposed reduction in capital gains taxes would mean that million-dollar businesses could be sold with a significantly smaller tax bite being taken out.
Before the proposed tax bill becomes law, just like with any other bill in Congress, there will undoubtedly be changes. Small business owners are encouraged – as are all citizens – to consider the tax proposal overall, and not just a little piece of it, because the size and reach of the president’s proposed plan means it will affect the entire country for years to come.