Gene Marks: Why Trump’s tax plan is better for my small business
The one thing you can’t do about small business is generalize.
Depending on who you ask, there are anywhere between 20-30 million small businesses in this country. Some 70 percent of them are owned and operated by a single person. About 54 percent are based in the home. Together, these small businesses employ about 77 million Americans and account for 60-80 percent of all new jobs created.
This information comes from the Small Business Administration, the U.S. Census Bureau and other sources and it describes an array of businesses so broad that it would be foolhardy to make a blanket statement about them. So when it comes to comparing the latest tax proposals from GOP presidential contenders, Jeb Bush and Donald Trump, you can’t determine which is better for small business.
What may be good for a 20-person hedge firm in Boston may not be as good for a manufacturer in St. Louis that employs 150 people.
I can’t say how these tax proposals will affect your specific business. But I can make a statement about which plan is better for my business. It’s Trump’s.
I am a certified public accountant and run a very small technology and financial services firm with less than 10 employees and a handful of independent contractors and partners. The firm generates less than $3 million per year in revenue. It is profitable and stable and has provided a good livelihood for my family and that’s due to much hustle, long hours and more than 20 years of good, reliable service in a fairly large metropolitan area (Philadelphia). I am a registered Republican, a fiscal conservative who leans to the left on most social issues. I still don’t know who I’m going to vote for next year and can’t promise that it’ll even be a Republican. But if I were to choose between Trump and Bush, two very serious candidates in my mind, solely on their tax proposals, I would choose Trump. Why?
Both candidates have offered a complex listing of proposals addressing issues including eliminating payroll taxes for older workers and doing away with the “carried interest” deduction that produces so much wealth for executives at hedge funds and private equity firms. Many of their proposals, particularly those affecting small businesses, are pretty much the same. Both candidates want to reduce capital gains rates to 20 percent and eliminate the alternative minimum and estate taxes. They are both in favor of significantly eliminating business interest. They want to offer deals for companies to repatriate cash from overseas and lower the rates on foreign earning, both issues that affect larger companies more often than small ones like mine. They each list deductions they want to eliminate and (of course) want to get rid of those long-annoying but never-fully-defined loopholes.
But, with the exception of Bush’s proposal to allow businesses to deduct the cost of capital equipment when purchased instead of depreciating (a very big benefit to many small businesses and the customers who buy from them), Trump’s proposals are better for my company. This is not very complex. It’s just that his proposed rates are lower. And, all other things being equal (and for the most part they are), I’m going to go with the lower price.
Trump’s tax rates on individuals are lower. Small business owners like me don’t have a lot of options when it comes to doing our taxes. I run a service business. I bill, I pay my people. And I pay taxes on what’s left. It’s pretty simple. I take advantage of no special loopholes, have no customers outside the United States and don’t purchase capital equipment. I realize there are many companies with more complicated tax situations than me. But my business is very similar to the lion’s share of small businesses in this country: the merchants, the professionals, the consultants and the small firms located in industrial parks that you pass and never notice. Trump’s top individual rate is 25 percent and Bush’s top rate is 28 percent. Trump wins.
Trump’s overall corporate tax rate is lower. I file an S-Corporation return (more on that below) so I’m not affected by corporate taxes. But many of my clients are. We provide services to primarily small and medium-sized companies and for some of the bigger ones, a lower corporate tax rate affects their ability to spend. And here, Trump wins again. He has proposed a corporate tax rate of 15 percent which is lower than Bush’s proposed 20 percent.
Finally, and most importantly, Trump’s tax rates on companies like mine are lower. He has stated that his 15 percent corporate tax rates applies to all businesses “from a Fortune 500 to a mom and pop shop to a freelancer living job to job,” so pass-through entities like partnerships and S-corps would no longer pay individual tax rates.
This is, as he likes to say…huge. Particularly for me. The great majority of small businesses are either sole proprietorships (Schedule C), limited partnerships or S-Corporations (like mine). For us, corporate taxes are meaningless because all income flows to our individual returns and gets taxed at individual rates. But not under Trump’s plan. Our tax rates on our business income would be significantly lowered to 15 percent which, for those paying the top rate of 39.5 percent today would be an enormous benefit.
Of course, for a small business owner there are many other factors to consider when choosing our next president. And we must all take a candidate’s tax plan in context. How will these great ideas be paid for? And aren’t we only seeing half the picture? What else will the candidate do to manage the government’s ever-increasing budget deficits and national debt while still making good on all these promised tax cuts? These are big questions that still haven’t been satisfactorily answered.
But yes, on taxes alone, Trump’s plan would be better for my small business. What about yours?