This article was published in the Des Moines Register.
Making the TCJA permanent would avoid a massive tax increase while providing greater certainty that will benefit both individuals and small businesses.
The Tax Cuts and Jobs Act of 2017 (TCJA) was the most significant pro-growth tax reform measure in recent years. Taxpayers in Iowa, whether individuals or small business owners, benefited greatly from the tax relief and reforms as a result of the TCJA. However, effective policymakers failed to make the TCJA permanent and key provisions are scheduled to sunset starting in 2025. These provisions, unless renewed or made permanent, will result in significant tax increases. Further, the tax increases will harm the national economy, which is already on shaky ground.
The TCJA made several important tax reforms. Some of the key reforms included lowering both individual and corporate income tax rates, increasing the standard deduction, establishing a 20 percent deduction on qualified business income for passthrough businesses, among others. In 2025, the individual income tax rates are set to expire and revert back to the 2017 rates along with a decrease in the standard deduction. Further, the 20 percent deduction on qualified business income will also expire, while the corporate rate reductions are permanent. Other provisions of the TCJA are also set to expire or change, but these are the most consequential because of the impact it will have on taxpayers.
The TCJA, along with the deregulation policies of President Donald Trump, led to an economic expansion. Small business optimism hit record high levels. Both individuals and small business owners benefited greatly from tax rate reductions and the 20 percent Small Business Deduction. It is often forgotten, but the vast majority of small businesses are subject to individual income tax rates. As a result of the TCJA, individuals were not only allowed to keep more of their income, but small business owners across Iowa were able to expand, invest, hire more workers, and provide bonuses to their employees.
Individuals and small business owners across Iowa have been struggling as a result of high inflation and growing economic uncertainty as a result of the poor economic policies emerging from President Joe Biden. This situation is only being made worse as small businesses realize that these key provisions of the TCJA are set to expire. When it comes to tax policy, establishing certainty is vital for businesses.
This uncertainty was captured by one rural Iowa small business owner who reflected on the impact of losing the 20 percent Small Business Deduction. “It’s hard enough in business not knowing if we’re going to survive the next year, and making this deduction permanent would help in knowing we had a small break from all the taxes we already pay through the year,” noted the owner. A restaurant owner from the Des Moines area shared a similar concern. “I need all the help I can get with rising payroll costs, food costs, and all costs in general. Things are tough and aren’t getting better,” stated the owner.
Lowering the corporate tax rates under the TCJA was a good policy, but it is just as vital to ensure that the tax code benefits both individuals and small business owners.
Congress is currently considering the Main Street Tax Certainty Act, which would make the 20 percent Small Business Deduction permanent. This legislation would not only provide certainty for small business owners, but also avoid a large tax increase. While this is good policy, the ultimate goal would be to make permanent the TCJA. Allowing individual tax rates to reset back to their 2017 rates, along with decreasing the standard deduction, will also result in a tax increase for Iowa taxpayers.
A tax storm is on the horizon, but policymakers can chart a different course and avoid a massive tax increase by making the TCJA permanent, while providing greater certainty that will benefit both individuals and small businesses.