You may have asked yourself if the GOP tax law helped or hurt your small business. Well, it strangely depends on what part of the country you live in. If you are in Professional Services, LLC or S-corporation in a high tax state (“blue”) like New York then no, you probably got hammered. If you lived in a low tax state (“red”) and were a C-corporation, then it likely helped you.
It’s really such a shame that it’s come to this. We are all small businesses who contribute equally to the economy of the nation. Why can’t we all be treated fairly by new tax laws?
A recent house hearing regarding the Tax Cuts and Jobs Act (TCJA), aka the GOP tax law, illustrates this point beautifully. In the hearing, small business owners disagreed over the impact. Unsurprisingly, it ran with this tired red state vs. blue state divide. Let’s go through what you may want to know.
New Tax Laws in Red States:
Justin Conger, an owner of a C-corp in Ohio attributed much of his company’s success to the TCJA.
He reported increased hiring and offer higher wages and better healthcare benefit as a result of these tax laws. If true, then he’s behaving much better than Fortune 500 C-corporations, which did not raise wages and just repatriated a ton of cash. They’ve been sitting on this due to the current economic uncertainty, which has been the true victory of this tax law.
New Tax Laws in Blue & Purple States:
Most small businesses are pass-throughs, sole-proprietorships, LLC’s, and/or S-corporations, not C, which means they had fewer resources and more administrative expenses. From a purple state, Virginia, one owner, Muneer Baig, expressed his doubts.
He also went on to say that he found the code more complex. This has been the complaint of many small business owners, who had to pay increased fees to their accountants. This complaint was strongest among non-C-corporations regardless of state.
A CPA from Rhode Island added a more mixed view. He said that there were benefits in the TCJA, but also believed that Congress should ease administrative burdens.
What Does the Data Say?
The benefits have varied based on where you live. First, growth has been mixed. In Ohio, construction was growing faster than Maine. According to the Bureau of Labor Statistics, Ohio was up 3.5%, while Maine shrank by 4.8%. Second, the same is true with unemployment. Ohio’s rate fell the most 0.7%, the rest ranged between flat to down 0.4%.
What Do Experts Say?
Most economists say it’s a bit of a sugar high, where it will help the economy in the short-term but hinder it in the long.
“Longer-term economic growth would arise from investment, but any incentive effects increasing investment would likely be offset by crowding out from increased deficits,” said
Jane Gravelle. She went on to say. “Longer-term economic growth would arise from investment, but any incentive effects increasing investment would likely be offset by crowding out from increased deficits,”
The New Tax Laws, in Summary
From looking at the data, it’s hard to make an argument that this bill helped everyone equally. It’s also hard to argue that it will have any real lasting and significant effect on the economy as a whole since the places and companies it helped will likely be canceled out by those it did not help. It looks like it is just part of the never-ending saga of Blue vs. Red that’s dividing the country. This cannot go on without negatively impact us all at some point. As part of the business community, we need to stop thinking of us vs. them. Instead, we should think more about making investments in what would help us all.
Is it infrastructure? Or maybe training? Education? It is for us to learn.