The Virginia Pilot
November 26, 2017
AS A SMALL-BUSINESS owner, I like to think that I know a good deal when I see one. It’s difficult to know with a moving target like the current tax bills being pushed through Congress, but for me and other actual job creators, this is a bad deal in at least three ways.
The first way that these plans hurt small businesses is by taking away the Domestic Production Activities Deduction (DPAD), sometimes called the manufacturer’s deduction, because it gives a tax break to businesses that keep manufacturing jobs in America. This provision, which was part of President George W. Bush’s American Jobs Creation Act of 2004, allows small businesses to deduct a fixed percentage of their income that comes from qualified production activities. This is just the sort of work we do at my business, Mermaid Factory.
Not everyone likes the DPAD because the language allows for some businesses to claim activities that don’t look much like manufacturing. But for businesses like mine, the deduction can mean the difference between making our products here in Norfolk or outsourcing our production overseas where it would be cheaper. This deduction works because in order to qualify for it, the business must pay actual wages to actual American workers. If ever there was a tax break that encourages jobs, this is it, and the Republicans want to get rid of it.
Another way that these tax cuts will hurt Virginia is by axing the Historic Tax Credit. This program, another innovation from the Bush presidency, enables cities such as Norfolk to revitalize old historic buildings and neighborhoods and open them up to new business opportunities. You don’t have to look much farther than our block to see examples where owners took advantage of these credits to redevelop under-utilized structures, creating construction jobs at the time and new retail and residential spaces that draw more customers and create more vibrant communities.
Norfolk isn’t the only Virginia city to benefit from the Historic Tax Credit. The mayor of Staunton has written to Sens. Tim Kaine and Mark Warner, and Congressman Bob Goodlatte explaining the value of this law. According to Mayor Carolyn Dull, Staunton has received more than $72 million in direct investment as a result of this tax credit. Why would Republicans want to get rid of a program that pays for itself while creating 2.4 million jobs?
The Republican tax plans don’t just take away valuable programs that help genuine small businesses, they also change rules on pass-through income, supposedly to help businesses like mine. The new rules will lower the tax rate to a maximum of 25 percent where some companies currently pay taxes on profits at the same rate as personal income taxes, which can be as high as 39 percent, if you make more than $418,000 a year. This sounds like a good deal, except that the people who will benefit most are those who are paying that highest rate. Those people, in general, are not small-business owners.
While many mom and pop stores are pass-through businesses, so are lots of enormous companies such as major law firms, investment firms and real estate companies. These are the business people who are making enough each year so that they pay the highest marginal rate. If this tax plan passes, their tax rate will fall to 25 percent. If your small business earns you between $38,000 and $92,000, which describes most small businesses today, you are already paying that 25 percent rate, so these rate reductions aren’t helping most of us.
Taxes are too complicated, mainly because we expect our tax code to do a lot. Federal taxes raise revenue to pay for necessary services, in particular, the military, but we also expect them to encourage productive activity like business investment. The current GOP plans raise so little revenue that they will increase the deficit by $1.5 trillion. They’re providing tax breaks for people who don’t need them while taking away policies that encourage the creation of actual jobs here in the U.S.
If I accepted deals like that, I wouldn’t be in business very long at all.
Elaine Luria is the owner of Mermaid Factory, a retail business with locations in Norfolk and Virginia Beach. The family business was founded in 2013 and has created 10 jobs in the community. She also recently retired from the Navy, where she commanded a combat assault craft unit.