Update from N.S.B.A. Fix the National Debt Simply the Tax Code for Small Businesses

 Dec. 22, 2017, President Donald Trump signed into law the Tax Cuts and Jobs Act (H.R. 1), following passage earlier that week by the Senate and House—both along party lines. Now that the historic tax reform is done and in effect for tax years 2018 and thereafter, it’s time for Congress, the Treasury Department and the IRS to work through the details of implementing the new law.

While the final bill offered considerable tax relief to most small businesses, it fell short in several key areas. Specifically, as talk of a possible second round of tax cuts grows (Tax Reform 2.0), NSBA believes that Congress should focus on fixing the national debt, simplifying the tax code for small businesses, creating stability and predictability in our tax laws, and moving toward greater parity in the tax treatment of various business forms. NSBA views the 2017 tax law not as an end-point but as an initial step to address a range of issues that Congress and the Administration must continue to pursue in 2018 and beyond—issues that were addressed inadequately or not at all in this bill.

What the 2017 tax law got right for small businesses, but most importantly, the unfinished business when it comes to tax parity and permanency for America’s small employers. Most small businesses are organized as pass-through entities and thus they employ the majority of U.S. workers. The new law gave C corporations a dramatically lower tax rate of 21 percent, yet pass-through businesses, on the other hand, didn’t get a lower rate. Rather, they got a deduction and because of the broad brush of new enforcement rules, most pass-through businesses won’t get the full deduction. Those rules limit access to the deduction based on income, industry, employment and investment. For those businesses that are able to take the new deduction, they will still pay a top tax rate that is 40 percent higher than the new corporate rate. That’s not tax parity. Finally, the deduction for pass-throughs expires in 2025, while the tax rate relief for C corporations is permanent. For most small employers, this sunset makes effective planning and investing today nearly impossible even as it puts them at risk of large tax hikes in the not too distant future. NSBA believes that Congress should focus on fixing the national debt, simplifying the tax code for small businesses, creating stability and predictability in our tax laws, and moving toward greater parity in the tax treatment of various business forms. NSBA views the 2017 tax law not as an end-point but as an initial step to address a range of issues that Congress and the Administration must continue to pursue in 2018 and beyond—issues that were addressed inadequately or not at all in this bill.Bipartisan legislation that will call to convene a White House Conference on Small Business (WHCSB), is scheduled to be introduced the week of June 4, with a media event planned for the same week. The legislation—championed by Reps. Rod Blum (R-Iowa), Stephanie Murphy (D-Fl.), and Al Lawson (D-Fl.)—will reunite the wide variety of voices within the small-business community to help educate Congress, federal agencies and the White House on issues that matter most to small businesses; enabling them to build and grow their companies, invest and create jobs and compete and prosper in a global economy.

As members of the House Committee on Small Business, all three members recognize that it has been far too long since a conference has been assembled giving a voice and a forum to America’s small businesses which account for 99 percent of U.S. private sector employers and 64 percent of net new private sector jobs.

The WHCSB was a series of three conferences that occurred in 1980, 1986, and 1995. They were convened by Presidents Jimmy Carter (originating by Executive Order 12091), Ronald Reagan (originating from Congressional authorization of P.L. 98-276) and Bill Clinton (originating from Congressional authorization P.L. 101-409) in an effort to foster better relationships with the business community, Congress and the White House to develop innovative policy solutions to economic problems. President Carter and President Clinton presented the 1980 and 1995 Conference’s keynote addresses, respectively.

All three Conferences shared similar organizational formats and activities performed, with differences generated in process and outcomes. To their credit, each of the three Conferences issued policy recommendations for Congress and the Administration to consider.

Of the 60 legislative and regulatory recommendations that were the product of the 1995 Conference, more than 90 percent were addressed in some way, and 20 of the 60 recommendations were enacted into law.

In addition, the 1995 Conference delegates elected regional implementation teams that worked closely with U.S. Small Business Administration (SBA) officials in monitoring congressional and executive branch action on the 1995 Conference’s recommendations after the Conference had ended. The SBA attributed much of the 1995 Conference’s implementation “success rate” to the efforts of these implementation teams.

A critical piece to the success of the WHCSB is the utilization of state conferences to ensure broad and equitable representation of the very diverse small-business community. Through the state conferences, which feed into the regional conferences and then into the national conference, small-business owners can develop, enhance and fully embrace the key issues facing small businesses nationwide. In addition to building consensus, growing small business networks and nurturing future small business leaders, the state conferences and broad participation of small businesses lend credibility to addressing issues and the final list of recommendations.

The goal of the WHCSB is the development of a comprehensive action agenda to improve the economic environment in the U.S. for small business in the following months and years to come. Inherent to achieving this goal is the coordinated work of Congress through the Senate and House Small Business Committees, the administration through the SBA and the Small Business Administration Office of Advocacy, and small-business advocacy groups. NSBA stands ready to work with each of these constituencies in both the execution of a WHCSB and the implementation of the action agenda’s recommendations.