The House Ways and Means Committee last week approved a revised bill that would lower taxes for many small business owners, and Senate Republicans are also proposing changes in the tax laws.
The House bill provides for a 25 percent tax rate for many sole proprietors, partners and shareholders in what are known as S corporations. These owners have what are called pass-through companies because their business income is not taxed at the company level, but passes to their 1040 returns. The bill also creates a 9 percent rate for the first $75,000 in earnings by some smaller pass-throughs.
The Senate bill would let business owners deduct some earnings and then pay at their individual rates on the rest.
Several small business groups have long advocated for a change in tax rates because some owners’ business income has been taxed at individual rates as high as 39.6 percent under current law while the corporate tax rate has been 35 percent. The tax bill also includes numerous proposed changes in individual taxes, including a consolidation of the current seven tax brackets into four. The top rate would be 38.5 percent.
Both bills would drop the corporate tax rate to 20 percent, but the Senate bill would delay its effective date for a year. They would also allow for larger deductions on some kinds of equipment purchases.
The House bill’s treatment of pass-through taxes was more generous than an earlier proposal that would have allowed only 30 percent of an owner’s business income to be taxed at 25 percent.
Small business advocates were split about the revised House bill.
“It includes real tax relief, allowing small business owners to keep more of their money to invest in growth and create new jobs,” said Juanita Duggan, CEO of the National Federation of Independent Business.
But John Arensmeyer, CEO of the Small Business Majority, said that in the new House version, “the bulk of benefits are still going to large corporations and wealthy individuals rather than Main Street.” The Senate version also favors the wealthiest corporations rather than small companies, he said.
The National Association for the Self-Employed said both bills would simplify tax compliance for small business owners.
“These changes will help America’s small business community save time and money and spur economic growth that will benefit our overall economy,” said Keith Hall, CEO of the group.
A BIT LESS OPTIMISTIC
Small business owners are still cautious about hiring as they’re a little less upbeat about the economy.
That’s the finding of a survey of 1,000 owners taken during August and September and released last week by Bank of America. The survey found that 46 percent of owners are optimistic that the national economy will improve in the next 12 months, down from 52 percent six months earlier. Forty-eight percent said their local economies would improve, down from 50 percent.
Other surveys, including one released last week by Wells Fargo, have shown confidence dipping slightly but still at post-recession or historic highs. The Bank of America survey showed that 71 percent of owners are confident that their 2017 revenue will surpass last year’s; that finding is in line with other surveys.
Sixteen percent of the owners surveyed said they plan to hire, down from 18 percent in the previous Bank of America survey. Seventy-six percent said they’ll keep the same number of staffers.
Health care costs remained owners’ biggest concern, cited by 72 percent.