When we go to the polls on Tuesday, November 8 to vote for our next president, we’ll also be deciding the future of the economy and small businesses in America. Whether the winner is Hillary Clinton or Donald Trump, you can bet that his or her tax policies will impact small businesses, which truly are the backbone of our economy.
The Small Business Administration (SBA) has established two widely accepted size standards to measure small businesses: 500 or fewer employees for most manufacturing and mining industries, and $7.5 million in average annual receipts for many nonmanufacturing industries. Small businesses account for 99.7 percent of all firms, employ about half of all private sector employees, pay 43 percent of total U.S. private payroll and have generated 65 percent of net new jobs over the past 17 years.
Here’s a look at the tax plans of both candidates and an unbiased analysis of the projected impact they would have on our economy.
Donald Trump. He has promised a restructuring of the tax code, starting with reducing the current number of seven personal income tax brackets to three (12, 25 and 33 percent) with lower rates and no taxes for couples making $50,000 a year or less. He has also proposed reducing the corporate tax rate to 15 percent and taxing what is termed “pass-through” income at 15 percent. This refers to small businesses that do not pay corporate income taxes, but whose owners are taxed at individual rates on their share of profits. Mr. Trump has said his “tax reforms will add millions of new jobs and thousands of new small businesses” and that, “my regulatory reforms will make it easier for small businesses to thrive, including millions of minority-owned businesses and small businesses all across the country.” On his website, he promises to “lower the business tax rate from 35 percent to 15 percent, and eliminate the corporate alternative minimum tax.”
The nonpartisan Tax Policy Center says Mr. Trump’s plan would increase the national debt by nearly 80 percent of gross domestic product by 2036, which would offset at least some of the incentive effects of his proposed tax cuts. Their analysis also concluded the bottom 80 percent of taxpayers would receive an income bump of between 0.8 percent and 1.9 percent, while the top 10 percent would see an increase of between 5.4 percent and 9.3 percent. The top one percent would see an income boost of 16 percent.
Hillary Clinton On the campaign trail she has said she would be the “small business president” and has pledged to launch an initiative to make it easier to start a small business, by eliminating onerous licensing requirements and easing unnecessary regulations. Mrs. Clinton also wants to “promote the 100% tax exclusion on capital gains for long-term small business investments” and “work to create a new standard deduction for small businesses—like the one available to individual filers.” She also calls for simplifying taxes for small business owners and allowing them to deduct up to $1 million in capital expenses, doubling the current limit of $500,000. On taxes, her plan would keep the current tax brackets in place, with one notable exception: she would raise taxes on the wealthiest Americans. Mrs. Clinton would like to see a surcharge of four percent on incomes or more than $5 million, which means the nation’s highest earners would effectively be subject to a top marginal rate of nearly 44 percent.
In its analysis, the Tax Policy Center says Clinton’s proposals would lead to an estimated increase in federal revenue of $1.1 trillion over a decade. She has said that additional money would be used to cover the cost of her other policy proposals (such as increased infrastructure spending, universal preschool and tuition-free community college,) making her overall agenda have a neutral effect on the entire federal budget.
No matter who you favor in November, No matter who you favor in November, if you’re wondering about the impact the fiscal policies of the candidates might have on your small businesses and your portfolio, we hope you’ll consider contacting CGO Wealth Management.