Every hardworking American feels the pain of taxes. Just the process of filing taxes can be frustrating, confusing, and costly. Small businesses are no different. Last year, the National Federation of Independent Business asked our members to rank their top problems and priorities. Half of the top 10 issues were related to taxes. Small businesses struggle with federal and state taxes, with local property taxes, with the complexity of the tax code, and with frequent changes in federal rules.
President Trump and congressional Republicans have vowed to make tax reform one of their top priorities this year. Small-business owners are extremely pleased by the president's plan, which slashes tax rates, simplifies the code, and puts Main Street firms on an even playing field with large corporations.
Since November, the NFIB Small Business Optimism index, which measures small-business sentiment and economic activity, rose to the highest level since 2004. That increase was built on the expectation that the new administration, working with Congress, will reduce the burden of taxes, regulations, and sky-high health-care costs.
Small businesses are an incredibly important piece of the American economy. Over the past two decades, small businesses created two-thirds of net new jobs. Nearly half of private-sector workers are employed at small businesses, which represent 99.7 percent of all firms in the United States. In Pennsylvania, small businesses account for 46.9 percent of all jobs.
During the later Obama administration and even now, there are some in Washington who think that only corporate tax rates should come down. That would be a grave mistake. Three-quarters of small businesses are taxed at the individual rate. Ignoring these businesses in tax reform, would not only leave small business behind but could actually hurt small firms that are important to their communities.
Small businesses fund the local sports teams. Small-business owners know their employees and work with them during difficult times. Small businesses get passed from generation to generation. Their owners don't just think about the bottom line.
For many small businesses, their biggest competitors are big corporations, which already have certain advantages when it comes to taxes. . Big companies employ a legion of accountants, lawyers, and compliance specialists to make sure they are paying the lowest rates. Multinational companies keep money overseas away from the IRS. NFIB members don't want special treatment; they just want to compete on an even playing field.
Right now, there is a gap between the highest corporate tax rate and the highest individual rate. That means some smaller businesses pay a higher share of their income in taxes than big corporations. If corporate tax rates come down and individual tax rates stay the same, that gap would widen. Wall Street would have another advantage over Main Street.
If we get parity in tax rates, companies both large and small can benefit from tax reform. During the campaign, Trump committed to parity. If he works to keep this promise, he could unlock incredible small-business growth that would help him keep his promises about jobs and economic growth.
Tax reform has to start with small businesses. The Optimism Index shows that they are primed to grow. Making that happen will not only take confidence, but will also require new resources. By lowering tax rates and simplifying the filing of taxes, small-business owners could have more money in their pockets and more time to focus on their businesses.