How Jeb Bush's Tax Plan Would Help Small Businesses

Many tax policy experts in both left and right leaning circles have praised 2016 Presidential candidate Jeb Bush’s Reform and Growth Tax Plan for being thoughtful about introducing pro-growth strategies that would encourage businesses to increase domestic investment in the U.S. Some of the boldest parts of the tax plan includes significant reductions in business tax rates and moving our tax system from worldwide taxation to territorial taxation where only domestic corporate income is taxed, a policy initiative intended to stem tax inversions, where companies reincorporate abroad, taking jobs and tax revenues with them. While this latter aspect of the plan is mainly geared toward encouraging large multi-national corporations to keep their business and tax dollars in the U.S., small businesses would also benefit considerably from the former Florida governor’s tax plan.

(Disclosure: I have informally provided economic policy advice to the Jeb Bush campaign.)

Former Florida governor Jeb Bush speaks during the second official Republican presidential candidates debate of the 2016 U.S. presidential campaign at the Ronald Reagan Presidential Library in Simi Valley, California, United States, September 16. Photo Credit: Lucy Nicholson/Reuters

Small businesses would benefit from rate reductions to 28%, nearly a 30% drop from the Obama era top rate

At 35%, the U.S. currently has the highest corporate-tax rate among OECD countries, which in an increasingly globalized economy reduces the incentive for multinational companies to invest on our shores and makes it difficult to attract profit repatriation from abroad, at the cost of significant federal tax revenues. Relative to corporations, the top tax rate for small businesses is even higher at 39.6%. Effectively the former Florida governor’s tax plan would reduce the top tax rate for small business to 28%.

One might ask just how helpful would such a reduction in tax rates for both corporations and small businesses would be. The independent Tax Foundation estimates that the plan “would significantly reduce marginal tax rates and the cost of capital, which would lead to a 10 percent higher GDP over the long-term” and “would also lead to 7.4 percent higher wages, 2.7 million more full-time equivalent jobs, and a 28.8 percent larger capital stock”. Many of those additional jobs would come in the small business sphere.

Small businesses would be able to deduct taxes on all capital expenditure purchases of new plants and equipment

One of the most innovative pieces of the plan would exempt all long-term investments in new plants and equipment (commonly known to the business world as “CapEx”). The thinking is that this would encourage more long-term real fixed-investment, something which declined considerably in the wake of the Great Recession.