Forget Tax Breaks, Cut Regulation Instead: Small Biz

Man signing tax form
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Man signing tax form

Not even Rep. Eric Cantor is holding out hope that his proposed small business tax cut legislation, which will likely pass when voted on in the House of Representatives today, has a chance of passing once it gets to the Senate.

That isn’t stopping small business owners from weighing in on whether they believe the bill is necessary, or even necessarily good for business.

The bill, sponsored by House Majority Leader Cantor (R., Va.), would provide a 20 percent tax deduction to most businesses with fewer than 500 employees.

“We know over the past three years there has been a 23 percent decline in small business start ups,” Cantor told CNBC’s “Squawk Box”on Wednesday. “We're trying to get job creation through small businesses back in the game.”

There are plenty of business people who would welcome the tax cut. The International Franchise Association, for one, issued a statement on Wednesday announcing its support for the legislation.

“Though the best approach for tax policy to spur long-term job creation by franchise businesses would be comprehensive tax reform, rather than piecemeal fixes, the Small Business Tax Cut Act would spur growth until a complete overhaul is possible,” said Judith Thorman, the IFA’s senior vice president for government relations and public policy.

We asked members of our Small Business Councilto tell us whether they think a 20 percent tax cut — however theoretical — would help them hire, spend, and grow their businesses.

Most business owners agreed that a tax cut would be nice. And, sure, they’d be inclined to hire if they had a little more spare cash.

“I think a 20 percent tax cut would encourage small business spending and hiring,” said Beezer Molton, owner of Half Moon Outfitters. “If nothing else, small business owners may keep more money in their businesses. This, coupled with being more profitable, would be a strong force for growth.”

Others said that the quick-fix of a tax cut, without addressing the underlying problems in government, would not create stronger businesses long-term. For them, Congress needs to reduce what they see as onerous regulations.

“Until big-picture concerns with regard to the longer term issues get addressed—Washington’s dysfunction, massive regulation, an underperforming educational system, massive deficits and debt levels—I'm not sure that these "one off" decisions, although positive, motivate the average business owners to commit to any real long term decisions regards hiring and capital investing,” said Ronald Barnes, chairman of Midwest BankCentre.

Several talked about the need for a clearer tax code to be developed that would reduce the tax burden, including David Greenspon, president and owner of Competitive Edge, who noted: “One would only hire new employees if sales are growing and additional staff is truly needed or will be directly procured due to the hiring, not because you are paying less for taxes. Tax reductions alone are not really an appropriate mechanism to stimulate significant hiring. I think a simpler tax system with lower rates would be much better than a carve-out like this.”

Joseph Dutra, president and CEO of Kimmie Candy, worries about the uncertainty surrounding the issue of taxes and health care. “Would I welcome a 20 percent tax cut in my business? Of course. Would this tax cut affect my present decisions to hire more people or get me to buy more equipment? No. I do not count on tax cuts in the short term to made decisions,” he said. “I am still confused about my future exposure to higher health care cost and future tax structure for both personal and business. It looks like what the government is doing this now is just political keeping us from the bigger issues.”

Larry Mocha, president, Air Power Systems, agreed. “There is so much rhetoric about small business but very little action,” he said. “While it is true that businesses won’t hire unless increased sales require it, there are huge financial and regulatory burdens on businesses. For the government to allow a 20 percent tax cut for small business, may well be the financial breathing room that some small businesses need to survive. If they would follow that with regulatory relief, that would be helpful.”

"For the government to allow a 20 percent tax cut for small business, may well be the financial breathing room that some small businesses need to survive. If they would follow that with regulatory relief, that would be helpful." -President, Air Power Systems, Larry Mocha

“I just received a 40 percent increase in workers compensation and health insurance costs, so any relief is welcome and will be put to good use for our present and future employees,” said Cristi Cristich, CEO and founder of Cristek Interconnects. “We need much bigger and bolder moves in tax reform and reducing the size of government; however, if only minor relief is available, small business is the overwhelming best bet to maximize impact and leverage.”

Finally, there is a concern that if such a tax cut were to pass both the House and Senate, businesses above the 500-employee threshold would look for ways to qualify, diluting the impact of the tax cut and creating yet another loophole.

Writes David Grenier, president of Grenier Buick: “This law would certainly lead to unintended consequences by creating an incentive for companies with over 500 employees to try and fit the bill. From breaking larger companies into conglomerates of smaller companies or companies increasing the use of 1099 independent contractors to reduce employee counts, whether legitimately or not, this arbitrary 500 boundary is a foolish standard to make law.”

Still, nobody would turn down a tax cut.

“I would love a 20 percent tax reduction,” said Grenier. “It won't cause our company to hire, as hiring decisions are exclusively determined by consumer demand, but the additional capital might lead to further capital expenditures and technology upgrades.”

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