By: Tam Kennedy | As we head into the busy holiday season, tax reform is top of mind for nearly every small-business owner in Iowa. We can all agree that the burdensome tax code coupled with the exhaustive regulatory climate over the past decade has hindered our growth and prevented true economic stability. So the progress by Congress and the administration to roll back regulations and to reform our tax code is welcome.
Recently, the House of Representatives in Washington, D.C., took a necessary step toward overhauling the tax code for the first time in more than 30 years. Now, the Senate is considering a companion tax reform bill that is expected to be voted on soon.
As a small-business owner, I was excited to see Republican leaders lay out an initial tax reform framework that created parity between small and larger corporations. This kind of reform would have stimulated the economy and created jobs. But as we know, the devil is in the details, and the actual legislation put forth falls short of providing small businesses.
As it stands, the House and Senate have introduced legislation that would give larger corporations a competitive advantage over the small guys. Particularly disadvantaged would be small and medium-sized businesses in “growth mode” — just like many franchise owners who are on the precipice of adding new locations. But why should they be taxed at a higher rate or lose key deductions that create tax disparities?
Under both plans, businesses that file as a C corporation would be able to deduct their state and local taxes. But small-business owners would lose this important deduction.
The Senate plan also includes a 50 percent cap on the amount of wages eligible for the new 17.4 percent deduction. This arbitrary number doesn’t consider key attributes of franchising, where wages are added by franchisees like me. Instead, it would leave brands that generate opportunities for job creation unable to claim the full deduction.
And lastly, some “professional service” businesses wouldn’t be eligible for the new, lower rate altogether. Guardrails are important to prevent abuse, but many franchise owners could fall into this category.
Since 2001, franchise businesses have created twice as many jobs nationwide that contribute more than 3 percent to GDP. Here in Iowa, there are 10,000 franchises supporting 95,000 jobs — and these numbers are only expected to grow.
Under the current plans, franchise businesses are at risk of paying up to 10 percent more in taxes than corporations.
Fortunately, Congress still has an opportunity to help those who need tax reform the most — and they should start by ensuring small-business owners see relief. Recent polling indicates nearly 80 percent of voters agree that tax reform should put small businesses and larger corporations on a level playing field.
Several senators, including Sens. Ron Johnson, R-Wis., John Cornyn, R-Texas, and John Thune, R-S.D., have acknowledged that small fixes need to be made to improve the current pass-through rate under the Senate bill. And I agree — tax reform cannot leave out the vast majority of small-business owners. Congress must continue to work with small-business owners like me to ensure tax reform jump-starts the economy just as they have promised.
Tam Kennedy is the owner of a Taco John’s in Central Iowa.