“Big 6” Tax Plan Features Lower Tax Rates for Small Businesses

By at 27 September, 2017, 7:26 pm

Small Business Policy Insider

Special Edition: Tax Reform 2017

A series on key reform measures in the unified framework and their importance to entrepreneurship and small business growth

by Raymond J. Keating-

The “Big 6” negotiators and President Trump released their tax plan framework on September 27th, and a key benefit for entrepreneurs would be the reduction in tax rates on businesses.

ICYMI: Read SBE Council’s full statement on the tax reform framework here.

Specifically, the corporate income tax rate would decline from 35 percent to 20 percent, and the top individual tax rate that applies to business pass-through entities, such as sole proprietorship, partnerships, S-Corps and LLCs, would drop from 39.6 percent to 25 percent.

As noted by President Trump in his Indiana remarks about the rate reduction for business pass-through entities: “This will be the lowest top marginal income tax rate for small and mid-size businesses in more than 80 years.”

This welcome development would boost incentives for starting up, scaling and investing in a business. Quite simply, if enhanced business creation and growth is desired, then reducing the tax rate, and thereby enhancing the returns on such undertakings, makes for sound economics.

For good measure, there is the fact that the U.S. must compete for entrepreneurs, businesses and capital in a global economy. Yet, currently, our tax rates are non-competitive.

“Big 6” Framework Benefits Small Business C-Corps

A recent SBE Council analysis reported the following: “Based on data covering 171 nations, the U.S. imposes the second highest corporate income tax rate.”

Keep in mind that tax rates matter to most C-Corps, and they happen to be smaller businesses. Based on the latest Census Bureau data, 86 percent of C-Corps have less than 20 employees; 96.7 percent less than 100 workers; and 99.1 percent fewer than 500 workers.

“Big 6” Framework Benefits Small Business Non-C-Corps

As for non-C-Corps, which represent roughly 95 percent of U.S. businesses, the U.S. top income tax rate ranks 115th out of 144 nations, as reported in another SBE Council analysis. Again, most of these enterprises are small businesses. Consider, for example, that 90 percent of S-Corp employer firms have fewer than 20 employees and 98.6 percent less than 100.

Lower tax rates, along with other positive attributes of the plan, would be good news for businesses across the board, entrepreneurship and investment in America and therefore, for our nation’s workforce and the economy. Lower tax rates for small businesses means these firms can reinvest more of their hard-earned capital back into their employees and the growth of their enterprises.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.


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