The untold story — the story the media refuses to tell — is that American small businesses are just banging it under the tax reform package the GOP Congress passed, every Democrat voted against, and Trump signed into law.
American economic strength as measured by unemployment, employment growth, GDP growth and other common measures is perhaps as hot as it has ever been. Even without knowing the exact numbers, Americans recognize this reality and that explains part of the reason President Trump’s approval ratings continue to rise and the generic Congressional ballot continues to narrow.
At the same time, and acting in tandem, small business confidence has hit an all-time high. This matters because businesses make investment, expansion and hiring decisions based on their confidence in the economy going forward, all of which suggests that the economic growth we are seeing has real, lasting legs — barring an unforeseen catastrophic event.
Small businesses are the heart and soul of the American economy. They always have been, and they always will be if the American economy is to retain is global leadership and strength. Apple, Google, Exxon-Mobil, Microsoft, General Motors, may be great companies. But huge companies are not what built and sustain the American economy. Small businesses that blanket every community are that.
And the Trump GOP tax cuts, along with ongoing deregulation, are playing a major role infusing them.
John Horne is a small businessman on the Gulf Coast of Florida and his story is exemplar of hundreds of thousands of small businesses. He owns four restaurants in Manatee County, just south of Tampa, and employs 333 people — 300 of whom are hourly employees with an annual payroll of $2.5 million; 33 are managers who earned $1.5 million in salary and bonuses in the past year.
He recently wrote in SRQ magazine how the tax cuts are affecting his business.
“I met with my CPA after tax season this year when he brought me my returns. What he explained to me was one of the parts of the new Tax Cut and Jobs Act where I get a 20 percent Business Income Deduction this year. He showed me what my taxes were in ’17 and if the new code were in effect what they would have been. I’ve already planned 2018, plugging my adjusted gross income for this year with the 20-percent deduction. We’ve been very consistent in our stores over the last 10 years as far as bottom lines go.”
Like most small businesses — and unlike the caricature created by Democrats and the media — Horne saw a great opportunity arising from the 20-percent reduction that the Trump GOP tax cuts gave him. He is taking that money and reinvesting most of it in his company and people, just like most American small businesses will:
“There are so many options, one I’ve already taken. Back in April after I met with my accountant, I bonused $60,000 to some of my staff. I purchased two new two-sided LED signs at $20,000 each for two of my locations to attract new customers. I heard my accountant say we’d probably realize $100,000 in savings/benefits from the new plan.”
Horne is in the restaurant business, which too many people deride is minimum wage. But that’s not really true. Of his 300 hourly staff members, no one is paid minimum wage; 113 earn $10 and $12.50 per hour; 39 earn between $12.50 and $15; 40 between $15 and $20; and 64 over $20. And about 47 percent of the hourly staff earn more than $15 dollars per hour.
Expect those wages to move up. The suddenly strong economy undergirded by the tax cuts and deregulation is now driving wage growth at small businesses. “The low unemployment rate is contributing to steady increases in wage growth,” according to Martin Mucci, president and CEO of Paychex. That means Horne and everyone else will have to pay more to keep and get employees.
Further, the CBO now reports that the tax cuts may pay for themselves, eliminating the “scary” $1.5 trillion deficit issue. That’s because of the economic growth roaring through the economy based on thousands of reinvestment decisions such as Horne’s.
Last June, the CBO said GDP growth for 2018 would be just 2 percent. Now it estimates growth will be a robust 3.3% — a significant boost. It also cranked up its forecast for 2019 from a paltry 1.5 percent to 2.4 percent. The CBO now expects GDP to be $6.1 trillion bigger by 2027 than it did before the tax cuts.
All of those trillions in GDP will be taxed and that will go a long way toward erasing the deficit — unless Congress continues to spend like drunken sailors, which unfortunately is a safe bet.
Horne’s small business is a down-to-earth illustration of this, also. In the last 12 months, FICA payments at his four stores were $552,544. Matched with the employees’ payments, that means his small business contributed more than $1.1 million in taxes just to support Social Security.
All of this is the undeniable reality of lifting high tax and regulatory burdens off small businesses. When the weight of government on the backs of small businesses is lessened, those businesses take off.
Unfortunately, that is a story most Americans are not being told.
EDITORS NOTE: This column originally appeared in The Revolutionary Act.