by CHIP ROGERS
AAHOA President & CEO
Only two things in this world are certain: death and taxes. Fortunately, we can do something about the taxes.
America is a republic, which means our leaders are accountable to the people, and the people are demanding tax reform. A recent poll conducted by Harvard University found that 89 percent of voters believe the tax code needs an overhaul.
It is easy to understand why voters overwhelmingly support reform. The tax code has not been revamped since 1986. Since then, tens of thousands of pages have been added to the tax code – many granting loopholes to special interests or closing loopholes for others.
Lawmakers have heeded the call. Earlier this fall, they joined White House officials in rolling out a plan for tax reform that is a win for American small businesses, dramatically simplifies the tax code, makes America more globally competitive and reduces taxes on the middle class. The Make America Great Again Tax Act is a bold step for Congress and a signature reform effort by President Donald Trump, himself a highly successful business owner who understands how the economy will benefit from tax reform.
The most important element of tax reform for hoteliers is a new tax structure specifically for small businesses, something that is long overdue.
Right now, most small business income is treated as individual income for the owners, and the tax rates for individual income are shamefully high. Lawmakers understand that small businesses drive the economy, creating two out of every three new jobs created. To reduce the tax burden on small businesses, lawmakers proposed a new tax bracket just for pass-through businesses.
The plan creates a pass-through tax rate of 25 percent, a drop from the current top individual marginal rate of 39.6 percent. As a layer of protection for legitimate small businesses, lawmakers included provisions to prevent extremely wealthy individuals from structuring their wealth and income under a banner of small business – a welcome addition that should garner bipartisan support. Protecting this tax rate for only real small businesses like yours ensures that it is kept in place for years to come, rather than becoming a political weapon for one side or another should abuse occur.
It is hard to overstate how massive of a change to small business taxes this plan is. Ultimately, it means a much brighter future for our economy.
Fortunately, that is not all that the reform plan encompasses. Other elements of the tax reform plan should also earn support from the small business community.
The plan reduces the corporate tax rate to 20 percent, a drop from 35 percent – one of the highest in the developed world. Twenty percent is still higher than some of America’s competitors, but it represents a major reduction in tax burden for businesses organized under the traditional corporate structure. With less of a tax burden, corporations will have more capital to expand, more room to lower prices for consumers and more cash to pay out to the middle class’s retirement investments.
The plan collapses the seven individual marginal rates (or brackets), currently ranging from 10 percent to the highest rate of 39.6 percent, to just three. That will translate to a large tax cut for a wide swath of Americans, from the working class to the middle class.
Finally, the plan dramatically simplifies the overly complex tax code. According to a nonpartisan tax research group, businesses and individuals spent more than $400 billion to comply with the tax code in 2016.
Tax reform means real economic growth. For businesses, money saved through easier compliance and lower rates will be spent expanding operations, buying new property or equipment and hiring new employees. For individuals and families, it means more money to buy consumer goods, build new homes, buy cars or, important to our industry, go on family vacations.
It is time for tax reform. Join our call to Congress to get the job done before the end of the year.
Visit aahoa.freeenterpriseaction.com/act to send a message to Congress to support tax reform.