PEACHTREE CITY, GA – During a hearing held in an airplane parts manufacturing facility in Peachtree City, Georgia, small business owners told the Ways and Means Committee how the 2017 Tax Cuts and Jobs Act has made a difference in their lives and livelihoods and Congress should immediately work to extend expiring provisions. Workers, farmers, and small businesses have all faced the same challenges of inflation, rising interest rates, chronic labor shortages, unfair competition from China, and supply chain struggles. Witnesses shared that President Biden’s proposed tax hikes and $80 billion raise for the IRS will make it harder to keep their doors open, hire new employees, and win against competitors based in China.
Chairman Smith highlighted how the Tax Cuts and Jobs Act benefitted Georgia families and small businesses, while warning against the consequences if key provisions are not renewed:
“We have seen here in Georgia how good policies deliver good-paying jobs. In 2017, after Republicans passed middle- and low-income tax relief along with pro-growth tax policies in the Tax Cuts and Jobs Act, Georgia Power was able to pass along $1.2 billion in benefits to its customers, lowering energy costs for millions of Georgians. Businesses of all sizes were able to hire new employees, expand, raise employee pay, and, in some cases, double their benefits. Every income group in Georgia received a tax cut, with your average family of four saving at least $2,000.
“Now, some of the very provisions of that law which helped the businesses in front of us today expand, invest, hire and grow, are facing the threat of expiration. Letting that happen would make the current pain of the Biden economy for workers, families, and small businesses that much worse.”
For each witness, Chairman Smith asked one question – how did the tax provisions Republicans included in the Tax Cuts and Jobs Act which are under current threat of expiration, make a difference for their small business?
- Lisa Winton: “Mexico…those factories, are state-of-the art…If we don’t invest here in our R&D and innovation, that’s what sets us apart. That’s what makes us America.”
- Alison Couch: “I developed an app that helped my clients…I had to seek out an investor to fund the R&D…he was willing to do the app because he was able to take the expense immediately.”
- David Bergmann: “Knowing that we can at least expense 100 percent of these dollars gives me some mitigation of the risk against my taxes.”
- Matt Livingston testified that the expiration of the small business deduction would hurt his remaining small business, while giving an edge to his big-box chain competitors: “Absolutely. For sure…Our margin is so thin and even now we’re having the cost of goods going up so high and being able to stay afloat and having to drop our menu prices. Our profitability has dropped drastically. Anything that charges us more is devastating.”
Lisa Winton, founder of a 38-employee machining company in Georgia making products used in manufacturing everything from refrigerators to the Mars Rover, shared her first-hand experience of how the Tax Cuts and Jobs Act allowed her small business to create jobs and expand production:
“Our solutions are in everything from refrigerators to the Mars Rover to the Iron Dome Weapons system that is used to protect Israel.
“Most of our competitors – as witnessed firsthand at trade events in 2022 – primarily come from Europe and Asia.
“I know that when manufacturing is strong, America is strong.
“In the year following passage of the Tax Cuts and Jobs Act, Winton Machine saw a 49 percent increase in sales, 53 percent increase in machinery shipments. We grew our overall labor payroll by nearly 150 percent and purchased a new, American-made CNC machine…
“Three recent changes to the tax code unfortunately make these goals more difficult…At the beginning of 2022, the maximum deduction for interest on business loans allowed under Section 163(j) of the tax code was narrowed from 30 percent of earnings before tax, interest, depreciation and amortization, to 30 percent of earnings before just interest and tax…‘full expensing’ of capital investment or ‘bonus depreciation’ began phasing out this year…both of these changes are like a tax on manufacturing growth…
“These changes will force our customers to keep using older pieces of equipment rather than purchasing newer or additional ones – or they will buy cheaper equipment from Asia or move more production offshore…
“For decades, we could immediately deduct 100 percent of our R&D expenses in the year they are incurred. But as of 2022, we can only recover a small portion of those costs each year…China allows a ‘super deduction’ for manufacturing R&D equal to 200 percent of research costs…
“None of these tax changes are fair to our employees, their families, and our communities.”
David Bergmann, founder of NAECO, an airplane parts manufacturer with 44 employees, told the committee the supply chain crisis and trade policy that have made his exports less competitive against his Chinese competitors have hurt his business. Mr. Bergmann also shared that the lapse of key provisions of the Tax Cuts and Jobs Act have made it more difficult for his small business to expand:
“We are in the materials business, and I’ve learned there are actually sufficient raw materials to satisfy demand, but everything in between, from industrial capacity to logistics capacity to work-force availability, seems in short supply.
“Every piece of job-creating equipment in this building was purchased taking advantage of Section 179 accelerated depreciation. I’m concerned about the impact. Industrial customers will not order from you unless you already have the machinery on your floor. So, growing manufacturers like us take a gamble and buy these complex six-figure machines in the hopes that the orders will come.”
Alison Couch, mom of two, prolific community volunteer, and founder of an accounting firm that helps other small businesses, shared how inflation, the labor shortage, and supply chain crisis have affected her client’s bottom lines and asked Congress to cancel Democrats’ $80 billion raise for the IRS to supercharge the agency:
“We celebrated our 10-year anniversary and the completion of Tax Day this week! I currently employ 9 women on staff.
“We are all so thankful to be beyond the days of COVID, but let’s not be so naïve to think the effects of it are gone. We continue to see a diminished workforce, supply chain issues, and now incredible inflation.
“One tax provision that has continued to truly help small business, in a huge way, has been the Qualified Business Income Deduction…I am here today to ask you to act on behalf of hardworking small business owning Americans and extend the TCJA of 2017…this deduction has been in place for so many years now, to allow it to go away will not feel like a sunset, but like a tax increase.
“The proposal to add a 5 percent surtax on business income does not ‘close a loophole’…While it is reported on the owners’ individual Form 1040, that income does not go into their pocket; it is plowed back into the business for investment in employees, working capital, and rainy-day funds…
“The IRS continues to close phone lines, have extensive wait times, and long backlogs…the idea of funding this agency with $80 billion additional dollars to perform audits, which will add to all of their existing problems, before the current backlogs are cleared out and current calls are handled in a timely manner, is preposterous…I am here today to ask you to NOT additionally fund the IRS with $80 billion dollars”
Matt Livingston, owner of a small home construction business and family restaurant that have had to shut three locations in the last year, testified that the labor shortage, inflation on everything from eggs for the restaurants to lumber for homes, and the supply chain crisis have hurt both his businesses:
“I’m not sure anything I could say will change the minds of those that believe this economy is thriving or it is the best that it has ever been. Anyone that has those beliefs obviously has not been to my small town.
“We have been forced on several occasions to ‘shut the doors’ for a day or two due to staff shortages. We had to permanently shut the doors on three and combine staff just to operate one…We try to employ 30 people at Coach’s, a few months ago I mailed out 92 W-2 forms. Employees expect higher pay for less work.
“We as small business owners must increase our compensation to entice people to work, all while paying more for goods to be sold only to leave our menu prices the same.
“We are paying outrageous prices for eggs, which in return increases the cost of every byproduct of that, mayonnaise, dressings, shortening, etc…Our food cost has drastically gone from 28 percent to almost 40 percent just to keep from pricing ourselves out of business and having to close the doors to another restaurant.
“We are a sports bar and sell an average of 17-20 cases of wings a week. We have been cut short to 10 cases a week…We are having issues getting windows, doors, concrete, drywall tape, electrical boxes, wire, and especially meter cans.
“The higher rates are pricing people out of the current markets and causing higher mortgages…We average 2 contracts a month, so annually we are talking $84,000.00 [loss] on a ½ percent [interest rate increase].
“We, as Americans, face a situation that has caused our cost of living to go up, and our chance of living to go down. I can only pray that this will be short lived, and we can give our children an opportunity to be proud to be an American as we once all were.”