The first week of May is National Small Business Week. Small businesses are the backbone of the U.S. economy. As this Forbes op-ed on the Small Business Administration points out, “Half of the people who work in America either own or work for a small business. And small businesses have created 60% of all net new jobs since 1995. Four million Main Street businesses—including neighborhood restaurants, dry cleaners, and local grocery stores—form the backbone of communities across America and they are responsible for about 40 million jobs.”
The Office of Advocacy of the Small Business Administration defines a small business as an independent business having fewer than 500 employees. According to the Small Business Administration, small businesses make up:
- 64 percent of net new private-sector jobs
- 49.2 percent of private-sector employment
- 43 percent of high-tech employment
- 98 percent of firms exporting goods
What impact will tax reform have for this key segment of the United States economy?
Small businesses are “Pass-Through”
As Tax Foundation explains, “Most small businesses are what are called ‘pass-through’ businesses, deriving their name from how their profits are passed through the business direct to the owners’ tax returns, who then pay tax on that income. These businesses can be sole proprietorships, partnerships, LLCs, and S corporations. Since pass-through income is ‘passed-through’ to its owners, these businesses face the same taxes as individuals. They will pay federal, state, and local income taxes, payroll taxes, and other taxes on income such as the Alternative Minimum Tax and the Net Investment Income Tax.”
Reducing regulation on small businesses
The U.S. House of Representatives recently passed H.R. 5, the Regulatory Accountability Act, which was Small Business Committee Chairman Steve Chabot’s measure for “smarter, less burdensome regulations that take into consideration their direct and reasonably foreseeable indirect economic effects, especially on small businesses.” The new bill “forces agencies to analyze not only direct, but also indirect effects of rules on small businesses.”
How would tax cuts impact your business outlook as an owner, employee or investor in a small business? Let us know by commenting below. Also for more on taxes, see The Policy Circle’s Brief on Taxation.
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