Letter to Ways & Means Committee: Making Permanent the Trump Tax Cuts for Working Families

By SBE Council at 14 January, 2025, 6:02 pm

Letter for the Record: "The Need to Make Permanent the Trump Tax Cuts for Working Families"

January 14, 2025

The Honorable Jason Smith

Chairman

Ways and Means Committee

United States House of Representatives

Washington, D.C. 20515

The Honorable Richard E. Neal

Ranking Member

Ways and Means Committee

United States House of Representatives

Washington, D.C. 20515

Dear Chairman Smith and Ranking Member Neal:

Tax relief provided by the Tax Cuts and Jobs Act (TCJA) of 2017 has been critical to the survival and success of small business owners. The relief and support were especially crucial during the unforeseen challenges associated with the pandemic period, where government shutdowns were followed by supply chain disruptions and inflationary pressures. The resources provided by the TCJA have been a means by which small business owners have been able to more effectively reward and take care of their employees - many of which are heads-of-households or members of working families. By making the Trump Tax Cuts permanent, our nation's small businesses will be strengthened and more competitive, which means their current and future employees will earn more, receive better benefits, and be more financially secure for the long term.

The Small Business & Entrepreneurship Council (SBE Council) supported TCJA's passage and has voiced strong support for making the lower rates and relief permanent. SBE Council is an advocacy, research, and education organization that works to advance policies and initiatives that encourage startup activity and small business growth. Our network of more than 100,000 member supporters, including entrepreneurs and small business owners, state and local business organizations, corporate partners and associations, work with us to strengthen the environment for entrepreneurship, investment, and innovation. Since our founding in 1994, SBE Council has helped to strengthen the ecosystem for small business and entrepreneurial success in the U.S. and across the world. A friendly tax system that is not too taxing or overly complex for startups and small business is vital to entrepreneurial growth and success.

Small business owners continue to tell us that policy stability is critical to building their businesses, and in providing secure and financially rewarding employment in their communities and for their workforce. "Certainty" with respect to permanency is vital to entrepreneurs since they need to know what financial resources they can plan for as they develop mid to long-term strategies for growth - the capital they will need for key investments, overhead and operations, human capital, and whether they will be in a position to compete. That is why making TCJA provisions permanent is important. Fluctuation in policy drives uncertainty and given that taxes and tax compliance impose disproportionate burdens on small-firm competitiveness and survival (if the tax system is too cumbersome or taxes too high) our nation's job creators and innovators require as much certainty as possible to not only survive, but to plan for growth and thrive.

Small businesses employ 59 million workers (45.9% of private sector employees), according to the Office of Advocacy's latest FAQ's on small business (July 2024). Small firms have been responsible for the creation of 20.2 million net new jobs since 1995, which account for 61.1% of net new job creation. The U.S economy counts on entrepreneurs to generate new jobs, and access to capital and financial resources is critical to that end. The TCJA's various provisions - the 20% small business provision (Sec 199A), expensing incentives, lower individual tax rates, higher death tax exemptions, the lower corporate tax rate, and various other measures - have played an important role in helping small business owners invest in their businesses. That means investing in human capital - creating new jobs, providing higher wages, and strengthening benefits for their employees.

Small business owners routinely reinvest profits back into growing their businesses and supporting their workforce. That is exactly what they did with "new" capital (their resources) that was made available through the TCJA. Permanency will keep the positive cycle of reinvestment going for the long-term. Workers and working families benefit from this certainty. Financial stability for small businesses means financial stability for workers and working families.

According to a November 2024 SBE Council Small Business Check Up Survey, 85% of small business owners reported varying level of benefits from the TCJA. Of the nearly 50% of small business owners who reported using the 20% small business deduction in our August 2024 Small Business Check Up Survey (as a reminder not all businesses are eligible to use the deduction, and a cohort of respondents were structured as C-corps that benefited from the lower corporate tax rate), 75% noted that they allocated the tax savings to human capital needs - either boosting the salaries and benefits of existing employees or hiring new staff.

Many small business owners who responded to our August 2024 survey commented that these resources provided significant relief to support employees and local job-seekers:

● The 20% deduction saved my business a significant amount. This money was used primarily for employee bonuses.

● The 20% deduction allows me to pay my employees more, provide better benefits, and expand my business.

● This has enabled us to invest in growth initiatives, such as hiring new employees, expanding our marketing efforts, and upgrading our technology infrastructure.

● The deduction has greatly increased our company's cash flow and allowed us to invest in personnel and technology.

● Because of the crucial savings, the 20% small business deduction has given us, we are able to provide competitive pay and benefits, and its expiration will make it more difficult for us to draw in and keep top people.

● It allows us to have more capital to expand business, hire more people, pay our employees more, etc.

● The 20% deduction resulted in a reduction in our taxable income, enabling us to reinvest those savings into the hiring of new employees and the expansion of our operation.

● This deduction is critical for continuing my company. I put it right back into the company.

Small business owners also commented on how expiration of the 20% small business deduction would impact their firms:

● It makes room to invest in more products for our business and pay the employees better. Letting it expire will drastically take money out of the working man's pocket.

● The deductions have allowed us to grow sustainably, but with them expiring, we could see a slowdown in growth. We may have to cut jobs.

● I would have to trim my staff and raise prices even higher. The impact if it expires would be immense.

● We will have to spend less on expanding our business and hiring needs.

● Allowing the 20% small business deduction to expire would drastically limit our financial flexibility, impeding growth and competition.

● It helped put more money in my employee's pockets. It [expiration] will be taking money out of their pockets.

● I was able to expand my business and increase wages and benefits, so when the 20% expires, I hope I don't need to cut them.

● If they allow the act to expire, it will significantly increase our tax burden, which will then freeze any raises or bonuses for employees.

● Should it expire, it will possibly force my business to close.

Permanency will help to fuel this virtuous cycle of small business growth and human capital investment. As these small businesses grow and scale, they create vibrancy in local communities and competitive choices for consumers. A competitive economy requires ample capital to fuel small business growth, where hopefully once small firms grow into mid-size and large firms, which benefits regional economies and U.S. competitiveness. Most small businesses need time to grow, therefore certainty with regard to knowing their tax liabilities and the resources they will have available makes it much easier to plan for growth.

This certainty extends to the other critical provisions within the TCJA - from business expensing to lower individual rates, the higher death tax exemption, and more. The long-term survival and "thrival" of small, family-owned businesses means local communities, workers, and working families are more economically stable. That stability allows workers and working families to build wealth. Local tax bases are also more stable.

The vast majority of small business owners consider themselves "working families." They toil around the clock to build and sustain their businesses and support local community organizations, religious institutions, clubs, sports leagues and more. Beyond provisions in the TCJA that relate to small businesses and business owners, all the individual pieces of the TCJA are vital to stability and the financial security of working families and the vibrancy of local economies.

That is why SBE Council strongly supported the TCJA in full - including the reductions of individual tax rates, an increase in the maximum value of the child tax credit, and the near doubling of the standard deduction - both the business and individual provisions have proven to be vital to the resiliency of U.S. businesses and working families.

However, both are under stress. For the two years or more SBE Council surveys have revealed that inflationary pressures, economic instability, and concerns about the potential of a recession have been weighing on the minds of small business owners. While the start of a new Administration is boosting confidence, lingering stress points remain given the uncertainty of expiring tax provisions. It's time to lift that uncertainty and make the Trump Tax Cuts permanent.

Tax relief and incentives provided by the Trump Tax Cuts were critical in providing financial support to small businesses when they needed it most, which benefited working families and local economies. Looking forward, policies must enable an environment that allows entrepreneurs to move beyond the tepid growth and survival mentality of the last four years to one that encourages confident risk-taking, investment, and innovative growth. Securing long-term, permanent tax relief will help to promote that enabling environment.

SBE Council appreciates the opportunity to submit our views for the committee hearing record. Please contact me if you have questions. We look forward to supporting the committee by making the Trump Tax Cuts permanent.

Sincerely,

Karen Kerrigan, President & CEO

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