How California Entrepreneurs Stand to Benefit From Federal Tax Reform
At the core of every small business is a grit-filled risk-taker who isn’t afraid to test new ideas and work hard at making their dreams become a reality. If you dig a little deeper, you’ll discover that these entrepreneurs are also incredibly optimistic, despite the many roadblocks they face along the way.
The 2017 American Express OPEN Small Business Monitor revealed that nearly three quarters (72%) of business owners have a positive outlook towards their businesses and the economy over the next six months. It’s an outlook that can only continue to trend upward should the current administration move forward with the proposed corporate tax reform plan.
For anyone unfamiliar with the components of this plan, here’s a quick briefing. Proposed in late April, corporate tax reform would completely overhaul the existing tax code. One of the its biggest highlights includes reducing the top individual income tax rate to 15% on pass-through businesses and S-Corporations. This would be a tremendous decrease from 35% under the current system, which currently is the third highest federal corporate tax rate in the world.
Many details of this plan are still in the works, and the official timing for when, and if, it may go into effect has not yet been determined. However, influential small business leaders are already praising the plan and how they anticipate it will reshape the nation’s small businesses.
Linda McMahon, Administrator for the Small Business Administration (SBA), has noted that a simplified tax code will allow small business owners to reinvest in their own businesses again. Karen Kerrigan, CEO and president of the Small Business & Entrepreneurship Council, also sees the positives of the proposed reform, stating that people working with a supportive tax system will be even more inclined to start businesses and it will encourage entrepreneurship.
Tax reform in the Golden State
You may have noticed that when I titled this post, I mentioned entrepreneurs specifically in California. The benefits that this kind of reform can offer is certainly not limited to small businesses in the Golden State alone. According to a CNBC/SurveyMonkey Small Business Survey, taxes are the number one concern of small business owners; 42% polled believe that tax policy changes will have a positive effect on their companies.
RELATED: 5 Questions New Business Owners Need to Ask About Estimated Taxes
From the major tech corporations headquartered in Silicon Valley and Santa Monica to the mom-and-pop stores scattered throughout the San Fernando Valley, and even farms and ranches across the north and south coasts, a simplified tax code can do so much to ensure the survival and continued growth of these businesses. Despite its high rental and leasing costs, California has the largest population in the United States with nine businesses for every 100 residents—a particularly high number of businesses per capita.
In 2016 the SBA approved more than $5 billion in small business loans for California companies. Continued economic development is promised throughout 2017, including testing new lending initiatives like Partnerships for Lending in Underserved Markets (PLUM) which works to increase lending and capital access to minority-owned small businesses and underserved markets.
However, should this proposed reform be shelved for any reason by Congress, Californians may simply find themselves stagnating and struggling under an outdated tax code. Federal income taxes will continue to burden entrepreneurs with pass-through entities, and there will be less money for entrepreneurs to invest in their businesses. In some cases, this may lead to the shuttering of many storefronts and could even negatively affect the overall optimism levels of entrepreneurs.
How entrepreneurs will benefit
At the core of every business is a person who has grit, is willing to take risks and work hard, and maintains a great attitude about the future. But if you dig a little deeper, you’ll find that it is passion that brings us to entrepreneurship.
Creating this kind of tax reform would be a big change, and changes can understandably be difficult to adjust to and embrace. A simpler tax code will make it easier for entrepreneurs to reinvest in their businesses, communities, and overall economy. Opportunities to hire and pay talent will increase, there will be money to set aside for the growth of a business, and the focus can remain on giving customers exactly what they want and need.
Perhaps Don Draper said it best in the series Mad Men, “I have a life and it only goes in one direction—forward.” As a small business owner myself, I have found that moving forward tends to reap nothing but benefits.
RELATED: 6 Ways to Invest in Your Business and Slash Your Taxes This Year
