Late last week, as communities across the country kick off the holiday season, members of Congress worked hard to modernize the tax code for the first time in over three decades.
House and Senate Republicans understand the dilemma: The tax code keeps our small businesses, including America’s 733,000 independently-owned franchise establishments, from reaching their full potential. From coast to coast – and even right here in Big Sky Country – franchises are being suffocated by the burdensome tax code and tied up in red tape. Despite the challenges they face, America’s small businesses help our neighborhoods flourish, which is why it is so critical the improved tax code truly empowers these small businesses.
Congress has taken considerable strides toward meaningful tax reform by introducing legislation, and though it’s not perfect, lawmakers have shown significant commitment to their small business constituents. Sen. Steve Daines, R-Montana, along with Sen. Ron Johnson, R-Wisconsin, initially opposed the Senate bill because it favored larger corporations over small businesses. In order to move toward a more level playing field, Daines and Johnson worked to refine the Senate’s legislation so that small business owners could deduct 20 percent of their income instead of 17.4 percent.
The change is certainly welcome, but more needs to be done. Despite the increase in the amount of income small business owners can deduct, there is still a 50 percent payroll limitation as part of the 20 percent deduction. The limitation is particularly problematic for small franchise businesses, like Great Harvest that are successful and looking to expand locations and to create new jobs.
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Another disadvantage in the legislation is small business’ inability to deduct state and local taxes, like corporations can. Small business owners have come to rely on this deduction, and this change would significantly weaken the competitiveness of “pass-through entities” like LLCs (limited liability corporations). Instead of creating new barriers to success, Congress should encourage American small businesses to strive to compete by ensuring the tax code treats them fairly.
Finally, if the current legislation is not corrected, there is a whole class of franchise businesses that would be excluded from tax reform entirely. Under the proposed legislation, “professional services” companies would be forced to pay the highest individual tax rate, rather than utilizing an improved tax code like businesses in other sectors. The arbitrary “professional services” classification would be devastating to entrepreneurs that have worked hard to create job opportunities for our neighbors and provide valuable services to our community. Professional services franchises should have the same tax system that every other business experiences.
As a former small business owner, it is no surprise that Daines understands my concerns. I’ve spoken to him and know firsthand that he agrees more needs to be done before crossing the finish line and sending a final piece of legislation to the president’s desk – which is exactly why he is fighting to ensure the hardworking men and women that power small businesses across this country see real relief.
So, for the sake of the over 3,750 local businesses employing more than 30,000 people right here in Montana, we urge Congress to fix these errors. America’s small businesses are counting on it.