After months of negotiations, the U.S. House of Representatives finally released H.R. 1, the Tax Cuts and Jobs Act. For the 445,000 Wisconsin small businesses and the 30 million small businesses across the country, the bill promises long overdue tax relief if it passes.
The bill calls for a federal reduction in small business taxes from the current rate of nearly 40 percent. It establishes a new top marginal bracket of 25 percent, which businesses can apply to 30 percent of their income. The other 70 percent will be taxed at the new, lower individual rates– 12 percent instead of 15 percent and 25 percent instead of 28 percent.
When coupled with the elimination of the Alternative Minimum Tax and a doubling of the standard deduction, main streets across the county could see tens of thousands of dollars of savings. This sizable tax cut will allow our state’s businesses to see more of their earnings invested locally instead of being shipped across the country to be spent by politicians on limited benefits to our local communities.
Unfortunately, in a typical partisan fashion, many on the left were quick to condemn the plan as a tax hike on the middle class, but multiple analyses have proven these claims to be false. And according to a new CBS News poll, small business tax cuts are popular among the American public. Nearly 70 percent support the idea—which goes to show that economic stability for the country’s leading job creators shouldn’t be a political game, but a policy objective.
Survey evidence suggests a tax cut will encourage local entrepreneurs to invest their savings back into their business in the form of higher wages, job creation, and business expansion. Wisconsin champions small businesses and understands the vital role they play in the economy. Our state’s small businesses employ over 50 percent of the private workforce. Tax cuts are a chance to reward these businesses for the constant service they provide us.
Despite repeated narratives that tax cuts hinder economic growth, Wisconsin is living proof that tax cuts work. Our State Legislature has passed over 50 tax cuts in the last six years, which have contributed to a 60 percent reduction in unemployment and a steady increase in gross domestic product. Applying similar policies on a national scale will only amplify the benefits.
America has experienced the impact of tax cuts from presidential administrations of both political parties: President John F. Kennedy and President Ronald Reagan. After taxes were cut under the Kennedy Administration, nine million new jobs were created and economic growth averaged over five percent. Likewise, after the Reagan tax cuts, nearly 12 million new jobs were created with economic growth averaging close to four percent.
When small businesses are obligated to forfeit almost half of all marginal income to government entities, the country loses. If we stick with the status quo, we will continue to live that consequence. Wisconsin’s own Paul Ryan said it best: “The Tax Cuts and Jobs Act will deliver real relief . . . With this plan, we’re making pro-growth reform so that America can compete with the rest of the world and families can have more take-home pay.”
Main Street businesses in Wisconsin already face a challenging business environment. The best way to recognize the vital role they play in the economy is by passing small business tax cuts now.
Devin Gatton is the President of Wisconsin’s Chapter of Log Cabin Republicans.