There’s a narrative out there that only large corporations will benefit from the tax reform initiatives pushed by the House, Senate, and Trump Administration. That’s a rather narrow-minded and incorrect outlook that overlooks the very real and measurable impact that will come to Main Street, USA.
Almost all businesses, especially the small ones, will win.
The most significant impact to them comes from the cut to the tax rates.
The corporate rate drops to 21% from 35% for any entity classified as a “C” corporation, which is a double-taxed business that pays corporate taxes while its shareholders pay income taxes.
For those businesses classified as “S” corps and limited liability companies (LLCs), which are usually smaller operations that pass-through the income (the business itself doesn’t pay taxes but the shareholders include the profits and losses on their personal returns), it’s a little less cut and dry but meaningful nonetheless. Under the new rules, owners will be allowed a 20% reduction in pass-through income. The goal is to cap those businesses’ tax rates at 25%, rather than having them pay the higher ordinary income tax.
Taking those two changes into consideration, most businesses will have more of their money to work with. Places like farms, restaurants, hardware stores, garages, machine shops, factories, hotels, theme parks and newspapers – the businesses that keep our local economies humming – all stand to gain.
It’s a welcome development, for sure, because we’ve been the ones shouldering the load.
The large corporations who are allegedly the only winners in tax reform are already paying small percentages and sometimes nothing at all. They have armies of accountants and legal counsel on staff who can find all the loopholes and havens that have allowed them to avoid taxation. According to a March report from the Institute on Taxation and Economic Policy, roughly half of the Fortune 500 companies that were consistently profitable between 2008 and 2015 had just a 21% effective tax rate over that eight-year period. Eighteen companies on that list paid no federal income taxes for that same period – name brands like General Electric, International Paper, and PriceLine.com.
We little guys who don’t play such games – either because we’re too busy running our businesses or because we aren’t so conniving -- have instead been paying a really hefty dose of taxes. To give you a real world perspective, my company, Confer Plastics, Inc., paid around a million dollars in federal income taxes in each of the past two years. Think about that: GE is nearly 4,000 times larger than CPI by revenue alone, yet we’re the one paying Uncle Sam.
Tax reform will give the moms-and-pops some of that big time benefit that has been reaped by the big boys – except we will put it to worthwhile use in our businesses and, therefore, our communities. Having access to hundreds of thousands more every year, given similar success to the past two, will cause me to pay off debt, invest in equipment and new product lines, compete better globally, and employ more people. I can see the same thing happening to farms and factories – the wealth-creating sectors of our economy -- across the region. The tax cuts afford all of us real, immediate and almost unprecedented economic development.
This isn’t what those on the left want you to believe. They want you to think that the fat cats will get paid and there’s no positive net effect to their businesses and employees. Really? If I was interested in paying almost nothing in corporate income taxes, wouldn’t I have given myself a massive bonus to minimize company profits? I didn’t, and most business owners don’t, because we invest in our companies. That’s what makes a good operation a great one (and a sustainable one).
Similarly, I recently had a tiff with someone on social media who said that growth would occur without cuts because investment in capital is tax exempt. Most business people I know don’t make investments based solely on tax exemptions because we never know what our profits will be by time the year closes out – anything, and I do mean anything, can happen. But, every businessperson will make decisions and moves on growth and risk based on access to capital (especially their own and not the bank’s) and that’s just the sort of thinking and action tax reform will inspire. Cash is king.
So, before you go on poo-pooing the cuts to tax rates and how they benefit the “evil” corporations, think about all the “good” ones in your hometown that will come out as big winners. There are great times ahead for small businesses, especially here in blue-collar Western New York where every single dollar will go a long way in helping the state’s moribund economy finally get back on track.
From the 01 January 2018 Greater Niagara Newspapers and Batavia Daily News