Small business representatives generally told the House Ways and Means Tax Policy Subcommittee during a hearing on May 23, 2018, that they have benefited from the Tax Cuts and Jobs Act (TCJA), though one suggested that reports of business optimism resulting from the new law are overblown. The hearing was the second in a series of Committee and Subcommittee hearings on the effects of tax reform, and members continued the partisan debate over whether the TCJA has been beneficial and for whom.

In an opening statement, Subcommittee Chairman Vern Buchanan (R-FL) cited National Federation for Independent Business figures that small business profit growth is at a 45-year high, the percentage of small businesses that are expanding their employment is at its highest level since 1999, and the percentage of small businesses reporting plans for expansion, increased hiring and higher wages, is at or near record highs.

Ranking Democrat Lloyd Doggett (D-TX) said today's hearing, like a full Committee hearing last week, is a "public relations exercise to try to put the best face on legislation that was designed to provide a windfall for Wall Street banks and for multinationals," with small businesses an afterthought. He cited Joint Committee on Taxation tables released last month showing nearly half the benefit of the new pass-through deduction going to millionaires.

The witnesses were:

— Larry Gray, Owner, Alfermann Gray & Co. CPAs, LLC
— Michael Baach, President and Chief Executive Officer, Philpott Solutions Group
— John Horne, Owner and President, Anna Maria Oyster Bars
— Phil Homan, President and Chief Executive Officer, LORAM Maintenance of Way, Inc.
— John Arensmeyer, Founder and Chief Executive Officer, Small Business Majority

In testimony, Gray said there is "a general sense of economic optimism" among small businesses in his area; Baach said tax reform gave his company "the courage to invest more than $5,000,000 in a new facility, equipment and upgraded manufacturing utilities infrastructure"; Horne said the pass-through deduction led him to provide his employees a bonus; and Homan said the TCJA has led to employee bonuses and investment in equipment and technology at his company.

Arensmeyer said the TCJA has done nothing to address the tax code's disparity in treatment between large multinational corporations and small businesses. His group believes the new law "will hurt small businesses and the economy because (1) it will increase the deficit by $1.5 trillion without giving most small business owners a significant tax break, (2) it adds more complexity and confusion and (3) fails to address corporate tax loopholes that give large businesses an unfair advantage."

During questioning, Rep. Peter Roskam (R-IL) said the TCJA may not be perfect but is certainly good for small businesses. Chairman Buchanan said the mindset among small business owners is that "Washington is with us now," and that they will benefit from full expensing. Rep. Kristi Noem (R-SD) said the TCJA helps small businesses stay in business and provides a road to growth and reinvestment, meaning it is vital "we keep it up and not entertain false narratives" regarding the bill delivered by Democrats. Rep. Dave Reichert (R-WA) suggested he was puzzled that members of Arensmeyer's group have not expressed the level of business optimism found in other surveys of small businesses.

Rep. Doggett suggested, and Arensmeyer agreed, that a deduction should have been provided solely to small businesses, not pass-through entities that include wealthier businesses, and suggested that a cap on the deduction could have focused benefits on businesses trying to grow rather than those already at the top. Rep. Linda Sanchez (D-CA) said the TCJA provided only modest help for working Americans without meaningful reforms, and that she agreed with Arensmeyer that the new law adds more complexity to the tax code. Rep. John Larson (D-CT) said even Republican members from high-tax states have called the TCJA a redistribution of wealth based on geography because of the $10,000 cap on the state and local tax deduction.

Committee Democrats yesterday issued a release citing specific small business owners who are concerned about how the TCJA will affect their livelihoods, and some members, including Rep. Suzan DelBene (D-WA), mentioned those concerns during today's hearing.

Buchanan's opening statement and witness testimony are attached.

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ATTACHMENTS

Arensmeyer Statement

Baach Statement

Buchanan Statement

Gray Statement

Homan Statement

Horne Statement