Natural State News

The National Federation of Independent Business (NFIB) has released two reports highlighting the potential economic impact if the 20% Small Business Tax Deduction expires at the end of next year. The reports, produced in collaboration with Ernst & Young (EY), analyze the consequences for small businesses if Congress either extends or allows the deduction to lapse.

The EY macroeconomic analysis suggests that making the deduction permanent could significantly benefit small businesses. It projects the creation of 1.2 million new jobs annually for the first decade and 2.4 million jobs each year thereafter. Additionally, it forecasts a $750 billion increase in GDP within the small business sector over ten years, followed by an annual increase of $150 billion.

In Arkansas specifically, extending the deduction is estimated to generate 10,000 new jobs annually for ten years and 20,000 jobs each year after that. The report also notes that 33 million small pass-through businesses employ over 68 million workers across the United States, with 25.9 million claiming this deduction in 2021.

The NFIB's Tax Survey reveals concerns among small business owners about potential changes to tax policy. According to the survey, 59% believe eliminating the deduction would negatively affect their business operations. Furthermore, 61% indicated they might raise prices, while others reported plans to delay or cancel investments and hiring.

"These studies underscore just how crucial the 20% Small Business Deduction is to our Main Street employers," said NFIB State Director Katie Burns. She emphasized that small businesses are vital to both national and local economies and urged Congress to prevent a "massive tax hike" by passing legislation like the Main Street Tax Certainty Act.

NFIB President Brad Close added that allowing small business owners to retain more earnings enables them to grow their enterprises and contribute positively to their communities. He stressed that letting this deduction expire would result in significant tax increases for millions of small businesses.

The Small Business Deduction was introduced as part of a broader tax reform in 2017 aimed at supporting smaller enterprises against larger corporations' advantages. It is scheduled to expire at the end of 2025 unless legislative action is taken.