B2B Payments

Critics Of Trump’s SMB Tax Cut Plan Say SMBs Won’t Benefit

President Donald Trump revealed tax reform plans on Thursday (Sept. 28) intended to benefit small- and medium-sized businesses (SMBs) in the U.S., a move that appeared to fulfill a campaign promise for which SMBs had been waiting. But according to some analysts, the proposals would largely fall short of their vow to cut taxes for small businesses, instead benefiting wealthy financiers on Wall Street.

The Trump administration released the “Unified Framework for Fixing Our Broken Tax Code” proposal that outlined, among other initiatives, “tax relief for businesses, especially small businesses.”

“Small businesses drive our economy and our communities, and they deserve a significant tax cut,” the proposal reads. “This framework creates a new tax structure for small businesses so they can better compete.”

It was welcome news for small business owners, which, according to research, have been anticipating tax reform for some time. Earlier this month, a new survey from CNBC found that 22 percent of SMBs in the U.S. cited taxes as the most critical issue — even more than healthcare.

But soon after the Trump administration revealed the proposal, the initiative was met with a firestorm of criticism from analysts, who claimed that such tax reform would actually do very little to benefit the nation’s small business community.

“The ‘small business’ tax cut in the Republican proposal is not really aimed at small businesses,” wrote Josh Barro, senior editor at Business Insider, in an article for the publication. “Much of its benefits would flow to large businesspeople — like Donald Trump.”

Barro explained that Trump and his network of businesses could qualify as a family-owned entity targeted by the tax reform proposal, while noting that law firms can similarly be “structured as general partnerships, even very large and prestigious ones,” that could quality for tax cuts outlined in the proposal.

The smallest of small businesses, however, are likely to see no benefit at all, because the proposal that caps tax rates at 25 percent is only beneficial to companies that are already being taxed at a rate above 25 percent.

Reports in Reuters similarly warned that the proposal may not actually benefit small businesses all that much, but instead benefit some wealthy enterprises.

“The problem, according to the plan’s critics, is that financial entities — such as private equity, venture capital and hedge funds — are all partnerships whose wealthy partners would see substantial tax savings on large portions of their income unless congressional tax writers find a way to exclude them,” the publication wrote.

The proposal acknowledges the issue, reports noted, and said that Congress should take up the matter.

“The framework contemplates that the [congressional tax] committees will adopt measures to prevent the recharacterization of personal income into business income to prevent wealthy individuals from avoiding the top personal tax rate,” the document stated, as reported in Reuters.

——————————–

Latest Insights: 

Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. The July 2019 Pay Advances: The Gig Economy’s New Normal, a PYMNTS and Mastercard collaboration, examines pay advances – full or partial payments received before an ad hoc job is completed – including how gig workers currently use them and their potential for future adoption.

TRENDING RIGHT NOW

To Top