Congressman Lloyd Smucker Talks the Main Street Tax Certainty Act
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Rep. Lloyd Smucker (00:00):
The Main Street Tax Certainty Act, it ensures that that 199A provision, that 20% deduction would be made permanent. And that would be something that business owners can rely on every year when they file their taxes, when they think about the dollars they're reinvesting. So, it would make that permanent. You know, we're only two years out from when this would expire. And I know, talking to business owners all across my district, you know, they want to know what the rules of the game are. They want that certainty and that's why we think it's really important to do this sooner rather than later.
Speaker 2 (00:46):
Welcome to "Paychex Thrive", a business podcast where you'll hear timely insights to help you navigate marketplace dynamics and propel your business forward. Here's your host, Gene Marks.
Gene Marks (01:02):
Hey everybody, it's Gene Marks, and welcome back to another episode of the "Paychex THRIVE" podcast. Thank you so much for joining me. We're gonna talk taxes today, but it's a really important tax topic. And I know this is like, singing to my dreams as a CPA. I have Congressman Lloyd Smucker on as a Republican from the state of Pennsylvania, not far from where I live. First of all, Congressman, thank you so much for joining me today.
Rep. Lloyd Smucker (01:25):
Yeah, thanks for the invitation. I'm looking forward to our conversation. I appreciate the opportunity.
Gene Marks (01:30):
Me too, very much so. You have co-sponsored a bill with more than, I think, 90 colleagues, a bipartisan bill called the Main Street Tax Certainty Act.
Rep. Lloyd Smucker (01:42):
Gene Marks (01:44):
Let me give you the floor and ask you to explain to our audience what this is and why it's so important.
Rep. Lloyd Smucker (01:49):
Sure, and again, thanks for the opportunity. And I think we're now up to about 120 members of Congress who've co-sponsored the bill.
Gene Marks (01:56):
Rep. Lloyd Smucker (01:58):
And it's bipartisan as well. And so, that's why I think not only is this really important but there's a very good chance we're able to to get this done. We're going to continue to build that support and have had a very good reception so far. So essentially, this supports our... And the title of the bill's called the Main Street Tax Certainty Act. But it supports what we often think of as our Main Street businesses. These are not the big C-corps, these are not the public C-corporations. But these are, you know, everyday mom-and-pop companies to larger privately-held companies as well. And the way it supports them, by the way, that group of businesses, as you know, Gene, you know, really does drive our economy. It's about 5% of all businesses in the country are what we call closely-held businesses. They're either S-corps,
Gene Marks (02:54):
Rep. Lloyd Smucker (02:56):
…LLCs, or sole proprietorships, something other than the C-corps. And, you know, they create seven out of 10 new jobs right now. They're creating, or they already... More than half of those employed are employed by these closely-held Main Street businesses.
Gene Marks (03:16):
And also, if I can add, like, half of small businesses in this, we've been spouting these numbers for so many years I'm hoping they're still right. But, they do generate, you know, small businesses, more than half of the U.S. GDP as well.
Rep. Lloyd Smucker (03:27):
Yeah. That's right.
Rep. Lloyd Smucker (03:30):
And when we talk about small businesses, generally, a lot of people have different definitions of what's considered to be small, but the Small Business Administration defines it as companies with less than 500 employees. But even so,
Gene Marks (03:40):
Yeah. you're absolutely right. I mean, big big generators of jobs. And production.
Rep. Lloyd Smucker (03:44):
For the purposes of this, for the purposes of this bill, it's any closely-held company. So, it could be a much larger company as well. Just any company that's not a C-corp because of the way it affects the tax code here.
Gene Marks (03:59):
Rep. Lloyd Smucker (03:59):
And you know, I was a small business owner myself for many years, 25 years prior to first serving in the state Senate and now in Congress. And so, I've seen the impact. Another piece, and I'll get to the question eventually, but another piece why this is important, I think a lot... I serve on Ways and Means committee, budget committee, Joint Economic Commission. I spent a lot of time, you know thinking about our fiscal trajectory the huge debt load that we have in the country. And we're in an unsustainable path. And it's a whole another topic, but one of the ways, in fact, arguably, has to be important part of getting out of that is strong economic growth. We've got to grow this economy at something akin to what we've seen historically, about 3% annual growth in GDP as opposed to our current projections from the Congressional Budget Office is about 1.6%. The difference between 1.6% and 3% growth in GDP over a period of 10, 20, and 30 years is phenomenal. And so, I think about creating an environment where businesses are willing to take risks to reap the reward of investing, of innovating, and so on. And that's what this bill does. So, this bill stems first from 2017 when we passed the Tax Cuts and Jobs Act. And that bill, the initial goal of the Tax Cuts and Jobs Act, which worked really, really well, by the way. You know, we saw strong economic growth, we saw low unemployment, we saw the lowest poverty rate ever in the country in our history. So, it worked well. But the initial goal was to allow the big guys, the C-corps, to compete with international firms. Our tax rate for the C-corps was extraordinarily high. We were one of the highest in the world. And so, we reduced that to 21%. So then, along with that, you have the S-corps, the closely-held companies that are competing with the C-corps, who have the, you know, the highest tax rate now is, I think, 37 or 39%, you'd know that better than me. But we're way up there,
Gene Marks (06:27):
Rep. Lloyd Smucker (06:29):
…much higher than the 21% C-corp. And so, for the first time-
Gene Marks (06:33):
And if I can just, I apologize for interrupting you, but just to explain
Rep. Lloyd Smucker (06:36):
Gene Marks (06:37):
…to our audience as well, because your point is very well taken. S-corps, or any kind of pass-through entity, they could be partnerships, they can limited-liability companies. They don't get taxed at the corporate level, they get taxed at the individual level. So, what you're saying, Congressman Smucker's that, you know, you're right. The C-corp, that tax rate was reduced to 21%. But for me, I run an S-Corp, for example.
Rep. Lloyd Smucker (07:01):
Gene Marks (07:03):
So, you know, my income flows due to my personal income taxes, and I get paid at, you know, taxed at individual rates, which are much higher and could be as high as 39.5%. So...
Rep. Lloyd Smucker (07:11):
Gene Marks (07:13):
Just want to make sure I clarified.
Rep. Lloyd Smucker (07:15):
That's a very important point. And I'm glad you clarified that, because that's exactly the situation that we're in. So, with a 21% C-Corp rate, the high of 37, 39.5% in the individual side made it hard for those companies
Gene Marks (0731):
Rep. Lloyd Smucker (07:31):
…to compete with the C-corps. And they're often competing with them. And so we did, for the first time in the tax code, implemented a deduction for owners of those closely-held organization of 20% of the income. And that deduction allowed businesses, the owners of businesses, to reinvest back in their businesses, to increase their wages for their employees to reinvest in their communities and continue to grow their businesses. And so, that was really important. It was an important part of the strong economic growth that we saw as a result of the Tax Cuts and Jobs Act.
Gene Marks (08:12):
And I'm going to interrupt you again with apologies,
- Rep. Lloyd Smucker (08:13):
Gene Marks (08:14):
…because again, you're absolutely right. And again, speaking as a small business owner myself I think this is, like, the first time ever we've had, like, a deduction like this that was introduced in 2017.
Rep. Lloyd Smucker (08:23):
Gene Marks (08:25):
And like, so guys, if you're listening or watching this, I mean, and you own a pass through, which like, 95% of businesses in this country are pass throughs, something like that. You know, it basically means that whatever you may, by the way, it doesn't apply to all businesses. Some are excluded, so you have to talk to your accountant about that.
Rep. Lloyd Smucker (08:41):
Gene Marks (08:42):
But for the most part, whatever money you made in your business before it flows to your personal tax return, you get a 20% deduction. So, if you earned $100 in profit during the year, only $80 of it would've been taxed. That's a huge tax deduction, huge. And that started in 2017. And I know for a fact, not only just me personally but also, you know, many of my clients really really took a huge amount of benefit, took that money and reinvested it, saved it, you know, hired people with it, bought capital equipment with it. So, it was a big benefit.
Rep. Lloyd Smucker (09:17):
Creating jobs. With the economy, yeah.
Gene Marks (09:18):
It was creating jobs.
Rep. Lloyd Smucker (09:21):
It worked exactly as we had thought it would, the entire Tax Cuts and Jobs Act, but specifically this piece. And we call this, it's 190A, that's the section of the tax code that implements this provision. But that provision, along with a number of others, expired, or is set to expire within the next few years by the end of 2025. And so, if we don't extend some of these pieces of the Tax Cuts and Jobs Act that have worked really really well, you're gonna see rates snap back. You're gonna see that 20% deduction gone. We've already seen an expiration of some of the provisions that allowed deductions for research and development. And that's already affecting the ability of some companies to invest in research and development. Which, by the way, we really want. And so...
Gene Marks (10:19):
And by the way, and also capital expenditures as well,
Rep. Lloyd Smucker (10:22):
Gene Marks (10:22):
..the deduction for depreciation, right? First-year deduction is starting to go down and down right?
Rep. Lloyd Smucker (10:28):
Gene Marks (10:29):
Rep. Lloyd Smucker (10:29):
So, you know, because of the way that bill was passed, it was done through a vehicle called the Budget Reconciliation Act. The CBO had to show it paid for itself within 10 years. This is probably getting way too much in the weeds, but the fact of the matter is much as we would've liked to make these provisions permanent we were not able to at that time. And we had hoped that we would come back, see the benefits of the Tax Cuts and Jobs Act, and there'd be overwhelming support to extend them, these provisions, and make them permanent. My bill, the Main Street Tax Certainty Act, it ensures that that 199A provision, that 20% deduction, would be made permanent. And that would be something that business owners can rely on every year when they file their taxes and when they think about the dollars they're reinvesting. So, it would make that permanent. You know, we're only two years out from when this would expire. And I know, talking to business owners all across my district, you know, they want to know what the rules of the game are, they want that certainty. And that's why we think it's really important to do this sooner rather than later. And we've, as you said, introduced this bill. We have broad support on a bipartisan basis. We have close to 120 co-sponsors now. And so, I'm hoping that this bill gets passed, hopefully even this year. If not this year, hopefully as soon as possible we can get this passed.
Gene Marks (12:10):
Perfect, that is great. So, the bill's been introduced, we're hoping it's going to come for a vote and get passed this year. And this would be in the House, which is Republican controlled. Is there a partner bill in the Senate? Isn't that the way yous usually act? You have to have a sort of a, you know, a bill in the Senate that's sort of, like, mirroring the bill in the House that, you know,
Rep. Lloyd Smucker (12:31):
Gene Marks (12:32):
then goes towards reconciliation?
Rep. Lloyd Smucker (12:34):
Yes, yes, there is. And yes, obviously this will have to pass in the House and the Senate.
Gene Marks (12:40):
Rep. Lloyd Smucker (12:40):
I don't know who... Steve Daines, I'm told, is the co-sponsor of that bill there. And I think, perhaps, for the listeners today, it's also important to know that over 160 trade associations and business groups have endorsed this bill. And if listeners want to be helpful to get this passed, I think it's important that their members of Congress hear from them, one of the reasons we have so many co-sponsors on this bill. But this came through in a very short amount of time as well. It's fairly unusual to have that many co-sponsors when the bill was just introduced. But one of the reasons for that is members of Congress are hearing from people, business owners across their district, about the impact it would have if this 20% deduction goes away. They're hearing from their trade associations. And it's really, really important we keep that up. Like, let your member of Congress know how important this is to you.
Gene Marks (13:45):
Okay, you know, there's always opposition, you know, to these bills. And I realize that politics is politics so sometimes people just oppose it because it's a party, you know, line kind of thing. But just playing devil's advocate, Congressman, like, you know, would you say a legitimate opposition to this bill is that people say, "Well this is a big tax deduction that's taking tax revenues away from the government, which, such tax revenues could be used to fund programs and other important government spending things"? I mean, I could see somebody having that point of view. What would be your response to that point of view?
Rep. Lloyd Smucker (14:27):
You know, Gene, there's an ongoing debate around economic policy and what works best, both to provide opportunity for the American people but, you know, what it does to our fiscal trajectory, which I briefly mentioned, but our fiscal trajectory going forward. And that debate occurred during the Tax Cuts and Jobs Act, but it's still alive and well in terms of, you know, whether the Tax Cuts and Jobs Act had the intended effect, whether it was very, very successful.
Gene Marks (15:02):
Rep. Lloyd Smucker (15:03):
And then there's another debate around who should be paying taxes. And you know, what we often hear, and I don't know how... I don't want to make this overly political but what we often hear, I'm a Republican, what we hear from the other side is that the rich just don't pay their fair share. The fact of the matter on this is that we're one of the most progressive tax structures in the world. So, the rich here pay a higher share than in many many other developed countries around the world. But, you know, again, I was a small business owner. I understand the power of individuals being willing to invest, to take risks, and then the incentives they have by being able to reap the reward of being, you know, often they fail. Many times I've had that happen. But then, you know, when they invest they can reap the rewards of that. That is creating jobs, that's growing the economy, and it's what we should be encouraging. And so, you know, from my perspective and from Republican perspective, the Tax Cuts and Jobs Act could not have been more... Okay, maybe could've been more successful, that's maybe an overstatement. But we saw economic growth at a higher rate than we had seen for years. We saw more jobs created, reinvestment in jobs here rather than overseas, millions of new jobs created, lowest unemployment rate in 50 years, and lowest unemployment rate for some, you know, populations that had traditionally been the most disadvantaged, lowest unemployment rate ever, more opportunity created. And, one of the things I'm proud of, lowest poverty rate in our history. And so, you know, and then we got hit with COVID.
Gene Marks (16:56):
Rep. Lloyd Smucker (16:56):
Otherwise we would've seen this go on. But the Tax Cuts and Jobs Act also resulted, against some of the claims of folks who, you know, who were not supportive of it, also resulted in the highest revenue ever coming into the US government.
Gene Marks (17:12):
Rep. Lloyd Smucker (17:12):
And it was higher than what CBO projected before we passed the bill. And so, it worked very, very well. It's hard to look at the numbers, in my view at least, and say that this didn't work extremely well. I just believe in the American people. And, you know, there're some here in DC who believe that we should be taking more money from the American people and then deciding how that money should be distributed. I believe that the power of our economy, the power of our system, is in the American people. Of course we have to have a government that's gonna require taxes, of course we have to have a government that's working effectively.
Gene Marks (17:51):
Rep. Lloyd Smucker (17:54):
But putting more money in people's pockets, putting more money in business owners' pockets helps to grow that revenue rather than reducing it.
Gene Marks (18:02):
You and I certainly have a lot in common about our views about the economy, how government money should or shouldn't be spent. Congressman, and we only have a couple minutes left but I did wanna get your... You're optimistic, I realize, that you've put through this bill you've got a lot of, you know people behind it, both, you know, from a bipartisan way. And maybe 'cause I'm just an accountant, so I'm paid to be pessimistic, but, you know, I look at all these tax, you know, credits and deductions that are starting to expire now, are being scaled back and will be expiring over the next, you know, couple years. I see all that rolled into, like, a big campaign issue. You know, like, I see, like, your bill, there's been another bill about reinstating the R and D, you know, tax deduction as well. I know there's other talks about making other of these, you know, deductions from 2017 permanent. I feel like there's just not gonna be a vote on the, it's gonna be, like, pushed towards 2024 and it's gonna be, like, one of the main platforms you know, of the Republicans saying, you know, "Listen, we passed this tax bill back in 2017. You vote for us again, we're gonna make sure this stuff continues on rather than doing it," you know, "sorta piecemeal." It almost takes away a little bit of the ammunition during an election year. Do you know what I mean? And I was wondering if you can comment on that. Am I being naive for saying that, or...
Rep. Lloyd Smucker (19:22):
No, no, I don't think you're far off that these economic issues are going to be, I think, one of the key provisions or platforms that both parties will be running on, and you know, frankly, some of these things we're going to need Republican senate, probably, to help us with these. We may need a Republican president, although I've been pleased, even with Biden there, where we disagree on many, many issues, we've actually been able to push through some pretty good fiscal policy. You know, stopping the trillions in spending, put together a debt relief bill that reduced the deficit,
Gene Marks (20:01):
Rep. Lloyd Smucker (20:02):
…you know, going forward.
Gene Marks (20:02):
Right. So, we've had some wins. So, I don't give up hope. And, you know, I'm very pleased with the number of co-sponsors on this particular provision. I think, as I mentioned, members are hearing from their constituents and so I'm, you know, I think you're right. These issues will be a big part of the upcoming campaign cycle and they'll be part of that. And, you know, to really get done what we'd like to get done we're gonna need a Republican senate and presidency, but there's some of these pieces that I think we can get done, and hopefully this would be one of them even prior to that.
Gene Marks (20:38):
Rep. Lloyd Smucker (20:38):
So, we'll see.
Gene Marks (20:39):
Rep. Lloyd Smucker (20:39):
You know, but you're going to be a little pessimistic. I try to be optimistic,
Gene Marks (20:42):
Rep. Lloyd Smucker (20:43):
…so, we'll see.
Gene Marks (20:43):
I agree. We need more optimists then pessimists, so thank you for having that point of view.
Rep. Lloyd Smucker (20:48):
Gene Marks (20:49):
Congressman Lloyd Smucker is a Republican from Pennsylvania, he has introduced the Main Street Tax Certainty Act with a bunch of co-sponsors and support, bipartisan support as well. If you are a small business owner, particularly have a pass-through business and wanna see the pass-through deduction continue on, the section 199A deduction, carry on and even be made permanent, call up your local representative and tell them that you support this act so hopefully we can actually see it become law. Congressman Smucker, thank you so much for all the great work you're doing, and it was a pleasure speaking with you.
Rep. Lloyd Smucker (21:24):
Thanks, thanks for having me, appreciate your voice for businesses and these issues that we're faced with. And so, thank you so much for having me, it's an honor.
Gene Marks (21:32):
It was a lot of fun. Do you have a topic or a guest that you would like to hear on "THRIVE"? Please let us know. Visit payx.me/thrive topics and send us your ideas or matters of interest. Also, if your business is looking to simplify your HR, payroll, benefits, or insurance services, see how Paychex can help. Visit the resource hub at paychex.com/works. That's W-O-R-X. Paychex can help manage those complexities while you focus on all the ways you want your business to thrive! I'm your host, Gene Marks, and thanks for joining us. 'Till next time, take care.
Speaker 2 (22:11):
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