By Michael B. Watson
Watson is CEO of Control Automation Technologies Corporation based in Williamsburg. He is also a former member of the Virginia House of Delegates.
Barely six months after the passage of the Tax Cuts and Jobs Act, Congress is already planning its second round of federal tax cuts and this one could be better than the last.
Dubbed as Tax Cuts 2.0, the second tax proposal is expected to focus on a variety of tax-saving measures. This includes making many of the Tax Cuts and Jobs Act's tax cuts permanent, as well as lowering the corporate tax rate. While these are both important goals, Congress should also focus on lowering tax rates for small businesses across the country.
The Tax Cuts and Jobs Act has already had an impact on small business. According to a recent small business survey from Bank of America, 63 percent of small business owners said they are more optimistic about the economy now than before the passage of the Tax Cuts and Jobs Act and 71 percent expect the Tax Cuts and Jobs Act to save them money. These statistics could be even better if the forthcoming Tax Cuts 2.0 think small business tax cuts first.
The average small business is often perceived as the small coffee shop in their neighborhood when in reality, small businesses encompass much more than that. In fact, there are more than 30 million small businesses in the U.S that employ nearly 59 million workers. These small businesses are the backbone of the American economy.
Many of these small businesses have already used tax savings to invest in their business since the passage of the Tax Cuts and Jobs Act. By hiring additional employees and rewarding current employees, job creators are putting their tax savings to work as they are in a much better financial position in 2018. In Virginia, Bay Electric Co., Inc. announced that the company will hire 12 more employees in addition to invest $500.000 in new equipment this year due to the tax bill and RDR, Inc. announced the company will be rewarding every single employee with a bonus.
As the CEO of Control Automation Technologies Corporation, a test equipment calibration laboratory, I know firsthand that tax cuts translate directly into helping small businesses-and their employees-thrive. In fact, we're using our tax savings to help expand our Virginia laboratory, buy equipment, and hire more employees.
All of this good news aside, small businesses could create even more jobs with additional tax cuts through Tax Cuts 2.0.
With this new tax bill, Congress should lower the individual tax rates and extend them past their 2025 expiration date. Because most small business owners pay taxes at individual rates, reducing them is integral to cutting the small business tax burden. Prior to the Tax Cuts and Job Act, the highest rate which many small business owners could pay was 39.7 percent. The bill lowered that rate to 37 percent (not including state and local taxes). While this is a huge step in the right direction, individual tax rates should be substantially lowered for job creators to continue to invest in their employees and expand their business.
Tax Cuts 2.0 should also extend the 20 percent deduction for small business owners. Currently, this deduction will go away after 2025 and all small business owners will suddenly face an increase in their tax burden making some wary of long-term investment. Because businesses like certainty, making the deduction permanent will open the gates for long-term growth.
Although small business owners remain optimistic about the growing economy, America still has some of the highest tax rates in the world, making it difficult for small businesses to be competitive on a global level. To continue its economic growth for years to come, Congress should keep our nation's job creators in mind when drafting their next tax bill.
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