Founding Father Benjamin Franklin once said, “In this world, nothing can be said to be certain, except death and taxes.”
So when the Trump administration recently revealed its framework for overhauling the country’s tax code, practically every working American took notice.
The president has said his plan amounts to “tax reform” that will give families and businesses more money to spend, thereby boosting the national economy.
Though his plan is currently is a bare-bones sketch that will have to be carefully examined by congressional leaders from both parties, it is how we democratically begin the process of determining how the government is funded.
An interesting question before the plan is finally completed, which may take until late this year, is how the proposed tax changes will affect minority-owned and small business in the D.C. region and around the country.
Jonathan Aberman, a business owner and lecturer at the University of Maryland, says that small-business owners, which include minority businesses, primarily are thinking about whether people have money to buy their services.
“That is where this tax cut completely falls apart as an economic development tool,” Aberman said.
Throughout the country in minority neighborhoods, minority-owned businesses are pillars of their community — the shops where people buy fresh produce to eat, the barber, hairstylist and the caterers for the local church, he said.
“They grow their businesses on the backs of other people having money to spend,” Aberman said.
The proposed tax cuts are disproportionately go to people who aren’t spending money in minority neighborhoods, Aberman said.
Instead, their money is spent on financial assets such as houses, cars, boats and airplanes, and invested in the stock market and hedge funds, he said.
“Taxes are very important to businesses and to the extent that they are reasonable that can help the business,” said David Harrington, president of the Prince George’s County Chamber of Commerce. “They can add to the cost of the business and that’s when they can be a problem.”
Harrington said president’s tax proposal still has to go through Congress and it is unclear what the impact is going to be.
“Many business-related organizations are going to keep their eye on it,” he said of the impending changes in the tax law. “I hope that the discussion will not only talk about taxes but how to reinvest in business, so that those businesses can create jobs.”
Citing a recent study by the Tax Policy Center of the Brookings Institute, a D.C. think tank, and The Urban Institute, Mathew Verghese, a spokesman for Rep. Anthony Brown (Md.-4th District), said that the plan would largely benefit the top 1 percent, or the wealthiest people in the country.
“What the administration is proposing is not tax reform, it is essentially a gigantic tax cut,” Verghese said. “It’s not geared toward small business, it’s geared toward corporations.”
Even parts of the plan that the administration says will help small business probably won’t, because the plan is cutting deductions, Verghese said.
He said would like to see included in the tax plan several ideas that could help small business, such as investing in education to make sure young workers have the skills to qualify for newer jobs in technology.
Verghese questioned what the administration is doing to improve infrastructure such as roads and bridges, transit and broadband, stressing that the country must remain competitive with foreign nations and concentrate on jobs in clean energy.
“That’s what Congress should be focusing on, what can we do to make sure businesses in Maryland and Prince George’s County can grow and expand,” Verghese said.
Upon examination of the administration’s tax framework, one of the first noticeable changes is the elimination of the current seven tax bracket model to three brackets. The administration lauds this as a huge simplification. The plan will eliminate estate tax which pertains to individuals with income over $5 million yearly.
Also eliminated is the Alternative Minimum Tax, which is designed to prevent wealthy individuals from avoiding paying taxes entirely by the using deductions and credits. Taxpayers would no longer be able to deduct their state, local or property taxes.
This deduction was designed to offset high tax rates in states such as California, Connecticut, Maryland, New York and New Jersey — blue states that Trump either lost in the November election or are heavily Democratic in voter makeup. Corporations could see their taxes shrink from 35 percent to 20 percent.
Large companies, which have assets overseas in countries with favorable tax laws, could be encouraged to return that money to the United States through the use of a low tax rate.
Somewhat of a highlight of the plan is a lower tax rate for partnerships and “pass-through” companies, which are smaller business that are allowed to file taxes at a personal tax rate, which is lower because they can use deductions such as writing off equipment, retirement accounts and depreciation of buildings.
“I’ve learned one thing in Washington, D.C., with all these years and that there’s winners and losers in tax reform, and a whole lot of people in the middle,” said Thomas Cooke, a longtime professor at the Georgetown University McDonough School of Business who specializes in federal income taxation and has published works on legal liability, tax ethics and various tax acts.
There is a list of things companies can do if they’ve paid lower taxes, such as hire more workers, build a new plant or buy new equipment. However, they can choose to pocket the profits and not share it at all, Cooke said.
“The average worker wants to hear lower taxes and tax reform, but until you actual show how it’s going to affect them, it’s hard for them to have a full opinion,” he said.
