The Tax Policy That Could End Small Businesses

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America has put billions of dollars towards easing COVID-19’s strain on small businesses. Volumes of new and unfamiliar tax policies have been proposed and introduced, some with good intentions, and others, with agendas. A lot of this legislation has effectively enabled certain elements of the economy to stay afloat that otherwise would have likely caved under the pressure of COVID-19’s economic fallout.

However, many reports show that instead of the mom-and-pop stores receiving the life-giving loans they desperately need, corporate giants are consuming the majority of the loans. Large and profitable companies like Shake Shack and others have received millions in aid despite having access to additional sources of financing, while countless small, local businesses are still waiting for a reply on their loans months after applying.

Small businesses, especially ones like restaurants with extremely low profit margins, are at the biggest risk since they do not have the necessary cash flow, savings to stand a prolonged “dry” period, and often are not able to secure financing.  One in four small businesses is only eight weeks from shutting down according to a recent poll by the U.S. Chamber of Commerce.

In the wake of this unprecedented crisis, politicians are seeking to push out new proposals to help incite economic growth. Instead of stimulus, a recent proposal is targeted at delivering tax breaks for real estate in an attempt to lure businesses back to the U.S. from overseas. This proposal would allow 100% immediate expensing for all costs, including all types of buildings, in an attempt to incentivize companies to return to the U.S. from overseas to jump-start the economy. While at face value, this may sound promising, policymakers are failing to identify the extreme potential long-term consequences.

With a cost of nearly $1 trillion, this proposal would primarily fall upon the very people it’s supposed to help–small businesses and individuals–while helping big real estate partnerships and other entities whose losses are only on paper.

Similar policies were introduced in the 1980’s seeking to reduce the depreciation of buildings. Though the initial cause was worthy, it led to terrible consequences with companies creating massive tax shelters without any economic demand which led to tremendous overbuilding and played a critical role in the savings and loan/real estate crisis of the 2000’s.

In the wake of other economic disasters like Hurricane Ike, small businesses bore the brunt of the fallout and received the mouses’ share of the loans while larger corporations benefited from the lion’s portion.

Julio Gonzalez, National Tax Reform Expert, CEO of Engineered Tax Services (ETS) and a member of Forbes Finance Council believes, “This move would be too bold and extreme, at the costs of all citizens and small businesses. Similar policies have historically been ineffective at best and often damaging.” Gonzalez has over 20 years of industry experience managing the taxes and accounting of the big five firms, and has been focused on helping small businesses succeed with the tools and knowledge usually reserved for the massive corporations. Despite being one of the people who would stand to gain the most from immediate expensing of real estate, he is doing all he can to stop it, because the economic threat it poses is much larger than most understand.

The timing of deductions for expenses remains one of the most debated topics among tax experts, pitting conceptions of how to best measure economic realities against the need to create a tax code that promotes economic growth. But economic growth must be accomplished correctly, eschewing  loopholes that would allow certain groups to profusely leverage certain elements at the detriment of others. Contributing to overbuilding, costing small businesses and struggling individuals needs to be avoided at all costs.

Allowing full deductibility of buildings can supercharge the markets and lead to unpredictability and speculation. Additionally, the benefits are localized to small segments of the market, the majority of which are not likely under as much financial and economic strain as the average person.

To stop the immediate expense proposal, readers should contact their local representatives (www.usa.gov/elected-officials) and declare their opposition to the proposal.

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