With some temporary provisions in the Tax Cuts and Jobs Act approaching their sunset, members of Congress are considering extending or making them permanent — but Anne Zimmerman believes that the act was disproportionately beneficial to large corporations at the expense of small businesses.
"By placing the needs of small businesses at the forefront of our Tax Code and political choices, we can cultivate a robust economy rooted in entrepreneurship and innovation," said Zimmerman, who is president and CEO of Zimmerman & Co. CPAs. "Making the TCJA permanent does not get us there."
Zimmerman — who recently testified before the House Committee on Small Business on Tax Day, April 18, in a hearing on the Tax Code and its effect on small businesses — cited a poll conducted in 2019 for the group she co-chairs, Small Business for America's Future. "The poll found that, 'The small business deduction in the Tax Cuts and Jobs Act has not helped the vast majority of small business owners hire, grow, or invest in their businesses, nor has it had a positive impact on their businesses' growth or profitability,'" she said.
By contrast, the TCJA cut the tax rate for large corporations by 40%, from 35% to 21%.
"I have small-business clients who are C corporations who actually saw their tax bill increase by 40%, from 15% to 21% because the TCJA not only cut the top corporate rate, but it eliminated the lower graduated rates for the smallest and least profitable businesses," she said. "Pass-through entities, representing the vast majority of small businesses, got a temporary 20% deduction — half as much as their big-business competitors."
"If we genuinely want to support small businesses, we must avoid taking the easy route by merely extending the TCJA," she told the committee. "Instead, our policymakers should do the hard work to develop a Tax Code that actually benefits small businesses rather than giving them a token deduction. There is no reason for the Tax Code to favor large corporations."
Zimmerman suggested the following provisions be included in the Tax Code to foster small business success:
- Create a tax credit for hiring the first employee, thus giving them scale and helping to overcome obstacles to hiring while trying to get footing as a new business.
- Make the first $25,000 in profit tax-free to strengthen truly small businesses, allowing the owner more time to work to get the business off the ground, rather than having to keep detailed expense records in their early days.
- Rebalance the TCJA tax cuts by restoring a small portion of big businesses' 40% cuts to equalize small business' 20% cuts and make them all permanent.
- Keep any changes simple enough so that small-business owners can understand them and increase education about the changes aimed at these owners.
- Consider a minimum tax on corporate book income, something that would not cost most small businesses anything but would go a long way to equalizing the playing field.
"I learned during the hearing that our suggestion for a tax credit for the first employee hired has been proposed by Rep. Chu [D-California]," said Zimmerman. "We also made the point that uncertainty is bad for business. A crucial area to foster small-business success is to avoid destabilizing political fights. Specifically, using the debt ceiling as leverage for political gain could lead to economic fallout and jeopardize the livelihood of small-business owners. So we're asking Congress to do the hard work of finding a way of making extended provisions more equitable for small business, rather than just renewing what's out there."
