Small businesses shouldn’t be penalized for contributing to America’s economic growth. They shouldn’t be seen as less significant than large corporations when it comes to federal taxes.
The tax cuts from President Trump’s first term, described as “big and beautiful,” are set to expire soon. Currently, the White House and Congress are working to extend what some consider the largest tax cuts in American history. Yet, strangely, some well-meaning but misguided Republicans are thinking about dismantling a key component of these reforms, potentially leading to a $200 billion tax increase that could hurt local businesses.
It’s difficult to imagine a worse outcome!
Small businesses serve as the backbone of our economy—think family-owned stores, construction teams, farms, auto repair shops, restaurants, manufacturers, and energy firms. They’ve weathered the storm of Bidenomics, but now they’re facing increased taxes. “Sorry, but your taxes are going up,” they might hear.
But why?
This stems from the ongoing issues with tax policies in Washington.
Central to the predicament is a lesser-known but significant policy from Trump’s administration designed to eliminate double taxation on businesses. This is referred to as the pass-through entity tax credit, or PTET. It’s easy to get lost in complex acronyms, but this deduction has really made a difference for small businesses.
Here’s a simplified breakdown: If you’re running a private business as an S-Corp, LLC, partnership, or sole proprietorship (a “pass-through” entity), you may owe state income taxes on your business earnings. Without Trump’s policy in place, you’d also have to pay federal income tax on that same income—which means you’re taxed twice, without being able to deduct what you’ve already paid to the state.
That’s double taxation in its simplest form. Trump’s PTET amendment allowed employers to deduct their state and local taxes when filing federal returns. Meanwhile, larger companies benefit from being able to deduct their state income taxes as a matter of course.
Trump’s PTET effectively leveled the playing field, so small businesses wouldn’t end up facing a higher tax rate based solely on their structure.
Now, though, some Republicans are looking to scrap this policy to fund budget initiatives. To put it plainly, they’re considering raising taxes on small businesses to fuel government spending.
This is politically reckless and detrimental to the economy.
Small businesses represent over 90% of American companies and employ more than 65 million individuals. They’re not asking for handouts; they just want a fair shot.
Abolishing PTET would benefit large corporations while penalizing local businesses like family farms and dry cleaners.
In a broader context, the real issue with the federal budget lies in spending, not income. Given these circumstances, GOP leadership should be cautious about rolling back any essential aspects of Trump’s first-term economic success.
Furthermore, if Republicans eliminate this fair approach for small businesses, it hands a political advantage to Democrats. Until 2026, they’ll have the narrative that “Republicans raised taxes on small business job creators to fund their budget maneuvers.”
The American public provided a majority in both houses of Congress, expecting meaningful results, particularly regarding the economy. Now is the time for GOP leaders to collaborate with Trump to make this happen. Doing so could energize small businesses and yield a significant political boost for Republicans as champions of small business and tax fairness.
