Year-end congressional action should make small business tax cuts permanent

Americans are busy preparing for the holiday season, and some in Congress are trying to take advantage of our distraction by passing a massive year-end “omnibus” spending bill. The Wall Street Journal reports that the bill would increase federal spending by more than $150 billion from already inflated pandemic-era levels and earmark and pet projects across the country. The Heritage Foundation projects that the legislation could exceed the US rescue plan’s $1.9 trillion price tag.

Have legislators not learned anything from the ongoing historic inflation that is causing a cost of living crisis for many Americans? The Labor Department revealed Tuesday that the consumer price index rose 7.1 percent over the past 12 months, nearing a 40-year high. For 20 straight months, inflation has grown faster than wages on an annualized basis, meaning Americans’ living standards are declining.

Inflation is an even bigger problem for small businesses. The wholesale cost increased by 7.4 per cent as compared to the previous year. Some inputs have increased at multiple multiples of that topline rate, putting pressure on already thin margins.

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Additional indiscriminate spending will only add to inflationary pressures by injecting more dollars into the economy, devaluing the currency already in existence, and bidding up prices. The inflation risk is even greater if the omnibus legislation includes the restoration of an expanded, refundable child-tax credit, as some policymakers want. This monthly payment would cost households $1.4 trillion and reduce labor force participation by essentially paying people not to work.

Fiscally responsible members of Congress should reject a bloated, inflationary omnibus bill in favor of common sense, compromise legislation that keeps the government funded. If he can rein in this month’s spending spree, his job will be easier next month when a new, divided Congress takes office.

However, there is one policy that all legislators should prioritize as part of any end-of-the-year legislation: Making the Tax Cuts and Jobs Act Permanent. Passed in late 2017, these tax cuts leveled the playing field between small and large businesses and ushered in historic shared economic prosperity before the pandemic.

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The tax deduction allows small businesses to deduct 20 percent of revenue, enabling them to reinvest the proceeds in productive activities such as expansion and employee wage increases. Another provision allows small businesses to immediately deduct all business expenses, encouraging investment and growth.

For example, the Rabin Group used tax deduction savings to offer 50 percent higher raises and bonuses for teammates and 100 percent larger donations to nonprofits. It was able to create over 20 jobs ranging from entry level positions to management. It significantly increased research and development spending and launched two startups that were on the back burner and suddenly became affordable due to tax cuts.

This experience was representative. And since small businesses drive the economy, these tax cuts also boosted economic opportunity for everyone – especially those who needed it most. In 2019, real median income rose 7.9 percent for black households, 7.1 percent for Hispanics, and 5.7 percent for whites. Wages for blacks rose 79 percent and for Hispanics 24 percent faster than in President Obama’s second term. This is in stark contrast to the declining real wages that workers are experiencing today.

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Unfortunately, without Congressional action, the Tax Cuts and Jobs Act expires after 2025, and the immediate spending provision is phased out next year. Small businesses plan for hiring and expansion years in advance, so they need certainty about future tax liabilities.

Congress can provide small businesses with some tax certainty during this uncertain time, jump-start the economy, and stave off historic inflation by shelving its omnibus spending plans in favor of making the small business tax cut permanent. Can do it under control.

Gary Rabin is the founder and CEO Rabin Group in Illinois and a member of Job Creators Networkwhere Alfredo Ortiz is the President and CEO.

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