The National Federation of Independent Business (NFIB) has recently unveiled two groundbreaking reports highlighting the critical importance of the 20% Small Business Tax Deduction. This vital tax provision, set to expire at the end of 2025, has been a game-changer for small businesses across the United States. The reports detail the potential consequences of making this deduction permanent versus allowing it to lapse, painting a stark picture of the future of America's small business landscape.
Created as part of the 2017 tax reform, the 20% Small Business Deduction was designed to level the playing field between small enterprises and larger corporations. It has proven instrumental in helping small business owners navigate recent economic challenges. The proposed Main Street Tax Certainty Act aims to make this deduction permanent, preventing a significant tax increase for most of America's small businesses.
An Ernst & Young (EY) macroeconomic analysis, conducted in partnership with NFIB, reveals the substantial benefits of extending the deduction indefinitely. The study projects the creation of 1.2 million new jobs annually for the first decade, escalating to 2.4 million jobs each year after that. Furthermore, the analysis forecasts a $750 billion increase in GDP within the small business sector over the initial ten-year period, followed by an annual boost of $150 billion in subsequent years. Failing to extend the deduction would result in the loss of these significant economic advantages.
In Texas alone, the impact of making the deduction permanent would be substantial. The analysis estimates the creation of 104,000 new jobs annually for the first ten years, rising to 201,000 jobs each year afterward. These figures underscore the deduction's potential to drive economic growth and job creation at both state and national levels.
The EY analysis also sheds light on the extensive reach of small pass-through businesses in the United States. These enterprises, numbering 33 million, employ over 68 million workers nationwide. Notably, 25.9 million of these businesses claimed the deduction in 2021, demonstrating its widespread utilization and importance.
NFIB's 2024 Tax Survey offers valuable insights into the perspectives of small business owners regarding tax challenges and potential policy changes. A significant 59% of respondents indicated that eliminating the 20% Small Business Deduction would negatively impact their operations. The survey also revealed potential consequences of the deduction's expiration: 61% of owners anticipate raising prices, 44% expect to postpone or cancel capital investments, and 36% foresee delaying or canceling plans to hire additional employees.
As the expiration date for the 20% Small Business Tax Deduction approaches, the NFIB's reports underscore its critical role in supporting small businesses and driving economic growth. The potential for job creation, GDP growth, and business expansion hangs in the balance as Congress considers the future of this vital tax provision. Small business owners and policymakers alike must grapple with the far-reaching implications of this decision, which will shape the landscape of America's small business economy for years to come.
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