Urgent Call to Make Small Business Tax Deduction Permanent

Categories: California Business NewsCalifornia News

Small businesses in California represent a significant part of the state’s economy and workforce.

News Summary

The NFIB has highlighted the vital need for the 20% Small Business Tax Deduction to be made permanent in California. With 4.2 million small businesses at risk of facing significantly higher tax rates, experts warn that its expiration could lead to reduced job creation and economic instability. Bipartisan support for this legislative priority is evident, with a recent poll showing overwhelming concern among Americans regarding the potential impacts of losing this deduction. Small businesses are critical to California’s economy, employing millions and contributing significantly to the GDP.

California — The National Federation of Independent Business (NFIB) has released a report emphasizing the critical need to make the 20% Small Business Tax Deduction permanent for the health of California’s economy. This deduction is essential to the 4.2 million small businesses operating within the state, and its potential expiration could lead to significantly higher tax rates and economic strain.

Without the deduction, small business owners could face a staggering tax rate of 52.9%, in stark contrast to the current C-Corporation tax rate of 29.84%. Experts warn that such a shift could jeopardize job creation and economic stability, with up to 141,000 new jobs potentially created annually over the next decade if the deduction is maintained. The annual increase in Gross Domestic Product (GDP) is projected to be approximately $9.78 billion during the first ten years and could rise to $20.2 billion per year beyond 2035.

John Kabateck of the NFIB highlights the urgency of this matter, noting the significant tax implications for small businesses should the deduction expire. The NFIB underscores that nine out of ten small businesses nationwide could be affected, creating widespread concerns among business owners and their employees.

Broad Support for Small Businesses

A recent poll demonstrates overwhelming bipartisan support for small businesses and the necessity of making the tax deduction permanent. Over 80% of Americans believe it is crucial for the federal government to provide ongoing support to small businesses. Furthermore, a compelling 93% of respondents agree that making this tax deduction a legislative priority is vital. Alarmingly, 95% of surveyed individuals have expressed concerns about the potential negative impacts if the deduction is allowed to expire.

The Role of Small Businesses in California

In California, small businesses represent a staggering 99.9% of all registered businesses, providing employment for approximately seven million people. The expiration of the small business tax deduction could pose a threat not just to individual businesses but to the economic fabric of the state as a whole. Experts assert that the elimination of this financial support would negatively affect small business operations, limiting their ability to hire new staff, expand services, and increase wages for their employees.

Historical Context of the Tax Deduction

The 20% Small Business Tax Deduction was introduced as part of the Tax Cuts and Jobs Act of 2017. Since its inception, it has empowered small business owners, enabling them to navigate the financial complexities of running a business while contributing to local economies. The NFIB, a nonprofit organization that has advocated for the interests of small and independent businesses for over 80 years, is calling for decisive action to ensure the longevity of this essential tax relief.

The distinct tax burden faced by small businesses, in light of a significantly lower tax rate for larger corporations, raises questions about the fairness and equity of the tax system. Making the 20% Small Business Tax Deduction permanent would help establish a more level playing field, aligning taxation more closely with that of larger corporations and supporting the ongoing growth of small businesses across California.

As discussions on fiscal policy continue, the future of the 20% Small Business Tax Deduction remains a pivotal topic. The implications for small businesses, employment rates, and California’s economy are profound, highlighting the critical need for legislative action in support of small enterprises.