Small businesses are vital to our economy. Over the past seventeen years, they have generated 65 percent of new jobs in this country. Empowering them to grow will be the key to our economic recovery and yet they are disproportionately affected by government regulations and taxes.
Small businesses spend three times more per employee on tax compliances and more than a third more to comply with federal regulations. Now that America has the highest corporate tax rate in the world, they face a tougher road than their counterparts around the globe and things could be getting worse.
If President Obama has his way, the American people will face a $494 billion tax increase effective January 1. The Washington Post refers to the coming onslaught as Taxmageddon.
If you're looking for a tax code that encourages economic growth, this clearly isn't it.
In the House, we are fighting that tax increase and working to simplify the tax code, making it fairer, flatter, and more conducive to economic growth and job creation.
As part of that effort, this week we passed the Small Business Tax Cut Act of 2012. If enacted, this bill would allow small businesses with less than 500 employees to deduct 20 percent of their income from taxes, up to half the wages they pay irrespective of how they are organized.
At present, small businesses can be taxed at up to 35 percent. So a business making $100 would owe Uncle Sam $35 at the end of the year. Under our plan, that small business would be able to deduct 20 percent from its income taxes meaning they would pay taxes on $80, resulting in a $28 tax bill and leaving them with $7 to spend elsewhere.
Whether a business is a corporation or one of the 75 percent of small businesses who operate as a pass-through, it will benefit from this new deduction. In Georgia 167,864 businesses who employ more than 1.5 million people would see their taxes reduced and many of another 655,248 sole proprietorships could benefit as well.
Implementing the Small Business Tax Cut Act would immediately free up funds for small business owners to retain and hire new employees, invest in expanding their business and drive commerce on Main Street.
A study found it would expand the economy by $112 billion and create 194,000 jobs. Once fully implemented, the study found it would create more than an average of 100,000 jobs per year with workers receiving more than two-thirds of the private-sector benefit.
At listening sessions with small businesses across our district, I have heard repeatedly about the problems facing entrepreneurs. The Small Business Tax Cut Act is the shot in the arm so many need to make our economy work again.