Small-business tax cut would boost wages
With less than three months remaining in the 2017 congressional calendar, there is not much time left to fulfill the major Republican goal of passing tax cuts this year. Republican leadership made progress at the end of September with the release of a tax-reform framework, which calls for lower rates, fewer brackets and more simplicity.
To generate the support necessary to pass tax cuts now, backers should highlight how they can address the complaint from both sides of the political spectrum that the economy is “rigged” in favor of fat-cat capitalists.
This criticism is understandable. One underappreciated source of an unlevel playing field is the current tax environment, which often places small businesses and workers at a disadvantage.
How? Big businesses can afford to employ dozens (sometimes hundreds) of tax accountants to find loopholes, carve-outs and credits in the tax code. No one should be criticized for reducing their burden of confiscatory taxes, but small businesses are usually stuck paying the full marginal tax rate of 40 percent.
As a result, small businesses and workers are often hit with the biggest burden. This puts small businesses at a competitive disadvantage with their big-business peers and international competitors .
Many policymakers and pundits on both sides of the political spectrum argue that the best way to address this inequity in the tax code is through comprehensive reform that does away with loopholes.
Even if successful, this would only foist high taxes on everyone.
A better way to help small businesses and workers is by simply passing a significant small-business and middle-class tax cut. This would lower their rates to be in line with their big-business and international counterparts.
Given that small businesses are the lifeblood of small communities across the country — accounting for half of all jobs and two-thirds of new jobs — such a tax cut would also be a needle to the heart of the economy.
By reducing the tax burden that these job creators face, both their ability and incentive to invest in their operations would increase, helping their communities. Tax savings can mean new jobs, higher wages and business expansion.
This brings us to the other bipartisan appeal of tax cuts: their role in raising wages.
Just recently beginning to increase, median wages have remained essentially flat this century and are a puzzle that politicians on the left and the right are eager to solve. The easiest solution is hiding in plain sight.
A middle-class tax cut would provide an easy and immediate boost to wages, as less from workers' paychecks goes to the government and more stays in their pockets.
This would further keep more money on Main Street, where it can be spent more productively, and less money on Washington's lobbyist-filled K Street, where it cannot.
Middle-class and small-business tax cuts will not solve all the distortions and cronyism in the economy, but they will dramatically level the playing field, boost the economy and bring relief to hardworking Americans — objectives even the most hardened partisans can agree on.
Shawn Ritenour is an economics professor at Grove City College.