Urgent Call to Make 20% Small Business Tax Deduction Permanent in California

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News Summary

A new NFIB report raises concerns for California’s small businesses regarding the impending expiration of the 20% Small Business Tax Deduction. If not made permanent, small businesses may face significantly higher tax rates, potentially leading to an economic slowdown. The deduction is critical for job creation and economic stability, with widespread public support emphasizing the need for legislative action. As small businesses unite to advocate for this tax relief, the implications for local economies and employment continue to loom large.

California — A new report from the National Federation of Independent Business (NFIB) highlights urgent concerns regarding the future of small businesses in the state, emphasizing the importance of making the 20% Small Business Tax Deduction permanent. This deduction was introduced as part of the Tax Cuts and Jobs Act of 2017 and is set to expire this year, potentially imposing significantly higher tax liabilities on California’s 4.2 million small businesses.

If the 20% tax deduction is not made permanent, small businesses could face an increased tax rate of 52.9%, in contrast to the C-Corporation tax rate of 29.84%. The NFIB warns that the expiration of this deduction could lead to a potential economic slowdown, financial strain on local businesses, and a detrimental impact on jobs and economic stability throughout California.

The report suggests that maintaining the deduction could yield considerable benefits for the state. Over the next decade, California could see the creation of approximately 141,000 new jobs annually, coupled with a projected increase in annual GDP of $9.78 billion for the first ten years. Beyond 2035, this annual GDP increase is expected to rise to $20.2 billion.

Support for small businesses appears to be widely shared among the American public. A recent poll indicates that over 80% of Americans believe it is crucial for the federal government to support small businesses, with 93% asserting that making the 20% tax deduction permanent should be a priority for Congress. The poll also revealed that 95% of respondents are concerned about the negative consequences of the deduction’s expiration.

Small businesses make up 99.9% of all businesses in California and employ around 7 million people. The potential economic repercussions of the deduction’s expiration could threaten the livelihoods of these workers as well as the stability of the state’s economy.

John Kabateck, the California State Director of NFIB, has expressed alarm over the impending tax hike that would impact small businesses, emphasizing the detrimental implications for business operations, including expansion, hiring, and wage increases. The NFIB has been advocating for the interests of small and independent businesses for over 80 years, stressing that the 20% Small Business Tax Deduction has been a vital financial tool for business owners.

Background context reveals the significance of small businesses in the overall economic landscape. In the wake of economic challenges due to the COVID-19 pandemic, small businesses have been crucial for recovery efforts, providing essential services and employment to millions. The NFIB’s report argues that preserving tax relief for these small businesses is essential for sustaining growth and innovation within California’s economy.

As discussions continue on potential tax reforms, stakeholders emphasize the need for government action to ensure the stability and prosperity of California’s small business sector. Making the 20% Small Business Tax Deduction permanent is not only seen as a necessary measure to maintain a level playing field but also as a pathway to job creation and economic resilience for years to come.