A featured presentation of the Washington Examiner
By Daniel Allott
When I asked Jack Brandenburg why he supports the Republican tax bill, he offered a simple explanation. Brandenburg, a Republican state senator from Macomb County, Mich., and owner of Blue Water Industrial Supply, said the tax cuts would be a boon to his business, which sells fasteners and shop supplies. “The more money I get to keep, the more money I have to give raises, hire, or put in my pocket,” he said, adding, “Why anyone would oppose this bill is beyond me.”
Polls show most Americans, including most small business owners, do oppose the Republican bill overhauling the tax code, and believe the changes will disproportionately help large corporations and the rich.
But four of the five small business owners I spoke with for this piece lauded the bill, especially the provision allowing companies to immediately write off the costs of new investments in equipment and buildings. “This is huge for my business,” Ray Blum, who owns a Dairy Queen franchise in Grant County, W. Va., said of the equipment write off.
Blum broke down his business’s tight financial situation. Blum’s net sales are roughly $800,000 a year. Once he subtracts sales tax, royalties to DQ headquarters (10 percent of net sales), food costs (33 percent), labor costs for employees (30 percent), utilities, mortgage expenses, local taxes, permits, repairs and maintenance, uniforms and other assorted costs, his profit is about 3 percent. And that’s before federal taxes. “That leaves little money left for improvements or building upgrades,” he explained. “If these improvements are able to be written off, that is definitely an incentive.”
“Why anyone would oppose this bill is beyond me,” said Jack Brandenburg of Macomb County, Michigan. Brandenburg is a Republican state senator and owner and president of Blue Water Industrial Supply, which sells fasteners and shop supplies.
Mike Gooder of Howard County, Iowa, said the first lesson under the current tax code is, “don’t work your ass off, achieve and make a profit,” because most of that profit will be taxed away. Gooder, who owns Plantpeddler, an international wholesale plant business, lamented that in his company’s most successful year, “Uncle Sam and the state took over 30 percent. That really sucks.”
Gooder said the bill’s incentives to invest back into his business will allow Plantpeddler to expand its operations. “We see absolutely no downside,” he said.
The tax bill, which the House of Representatives passed Tuesday and President Trump is expected to sign into law by week’s end, would also permanently reduce the corporate tax rate from 35 percent to 21 percent, lower individual tax rates, and double the standard deduction and the per-child tax credit. It also eliminates some personal exemptions and the Affordable Care Act’s requirement that nearly everyone obtain health insurance.
None of the five businesses in my sample are corporations, so they won’t enjoy the benefit of the corporate tax rate reduction. Most are pass-through companies, meaning the income they earn is “passed through” to the owner’s personal income tax filing. Pass-through companies will get a 20 percent deduction on business income under the new law. All of my respondents stressed that they had not yet read the bill, and haven’t yet met with their accountants to discuss its implications.
Mike Gooder, shown here with his family, said the tax bill’s incentives to invest back into his business will allow Plantpeddler, his international wholesale plant business, to expand its operations. “We see absolutely no downside.”
Permeet Patel, who owns a Best Western franchise in Robeson County, N.C., also likes the plan but offered a novel provision he wishes Congress would have considered: linking tax rates to an area’s relative wealth. “That way in a poor area rates are less and in New York City rates are higher,” he said. Robeson County is North Carolina’s second-poorest county, with a median household income of $30,000.
Not everyone is excited about the bill. Sean Fedorko, co-founder and managing director of Radius CoWork, a co-working company in Erie, Pa. said he doesn’t like that it would “transfer wealth to the already wealthy” and doubts corporations will invest their tax savings into expanding their operations or creating new jobs. Many people agree. In a recent CBS poll, 76 percent of respondents said the bill’s biggest benefits would go to the largest corporations.
Fedorko is also concerned about the bill’s effect on the national debt. According to the Joint Committee on Taxation, the bill’s tax reductions will cost nearly $1.5 trillion over a decade. If the individual tax cuts that are temporary in the bill are made permanent, the cost could reach $2 trillion, according to a report by the Committee for a Responsible Federal Budget. Republicans believe the total cost will be much lower once tax revenue from economic growth is factored in.
Fedorko said Radius CoWork, which helps fledgling businesses get their start, may be hurt by the law’s effect on tax credit markets. Many small businesses that benefit from tax credits trade unused credits to corporations in exchange for cash.
“If a reduction in the tax rate makes it easier for me to [provide a service to this community], then I am in favor of it,” said Ray Blum, who owns a Dairy Queen store in Grant County, West Virginia.
The tax credits are a win-win, Fedorko said. “They’re a way to infuse small businesses with cash transfers from large businesses while also giving corporations large tax discounts.” But at a much lower tax rate, corporations won’t have as much incentive to trade for tax credits. “My company and those I care for expect to lose out on tens of thousands of dollars,” Fedorko said.
Blum said that his goal in owning the Dairy Queen is not to get rich, but to earn a comfortable living (his annual salary is $60,000) and to provide a service to the community. His store offers a handful of young people, including some who are recovering from drug addiction, a job and the opportunity to learn some basic business skills. “If a reduction in the tax makes it easier for me to do that, then I am in favor of it.”
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