Republicans need more than tax cuts to woo small business

(This post originally appeared on The Guardian)

Reducing taxes can certainly help a small business. But it’s becoming increasingly clear that a tax reduction is no silver bullet for our challenges. That’s what Republicans are learning this year and it will be a recurring issue as the country heads towards the 2020 elections. It seems that different people view the impact of a tax reduction in different ways.

For example, a recent New York Times survey found that many people are generally unhappy with the amount of their tax refunds this year, regardless of the fact that withholdings were lowered and both individuals and small businesses are paying less in taxes overall. Why unhappy? It seems that many taxpayers actually prefer the idiotic strategy of overpaying their taxes during the year – in effect giving the government an interest-free loan – so that they receive a bigger refund when they file their returns the following year. Churchill wasn’t kidding when he once said that “the best argument against democracy is a five-minute conversation with the average voter”.

This type of ignorance isn’t helping Republicans make their case for the benefits of tax reform. But that’s not the end of the party’s problems. Consumers aren’t spending any more, as evidenced by last year’s depressing holiday sales, and businesses certainly aren’t making the investments that Republicans hoped for either. Don’t believe me? Here’s proof.

According to the first quarter’s MetLife & US Chamber of Commerce Small Business Index – a study of responses from more than 1,000 small businesses with fewer than 500 employees that are not sole proprietorships– the percentage of small business owners who planned to increase their investments in 2019 actually dropped from the last quarter to 27% from 29%. The numbers declined across most sectors. “Fewer small manufacturers report plans to increase investments than last quarter (28% v 34%), with more saying they plan to invest the same amount,” the report said. “Those in the service category are also slightly more likely to say they will invest the same, rather than increase investments, compared to last quarter.”

Unfortunately, there’s more bad news for next year’s Republican candidates. Planned hiring by small businesses as a result of tax reform this year isn’t turning out so rosy either. It could be because of the lack of skilled workers, immigration reforms and a low unemployment rate. Regardless, the same US Chamber index found that a “similar number” of small businesses said they planned to increase staff this year as reported last quarter.

As I wrote earlier, it’s still too early to tell if the Republicans’ tax plan is a bust. It’s only been one tax year and it will probably take a while for us to truly understand the impact of reduced taxes on investments and hiring. But one thing’s becoming apparent: it helps, but it’s not all about taxes. There are too many other factors weighing in on our growth and cash flow. What kind of factors?

Oh, you know. Tariffs. Tweets. Stock market volatility. Congressional investigations. Rising deficits. Inconsistent statements coming from the Fed. More local employment regulations on paid time off and minimum wage. Disagreements and stalling over much-needed infrastructure investments and immigration reform. All of these factors have had an impact on small business sentiment which, although still relatively strong, has been either treading water or trending down in recent reports from the National Federation of Independent Businesses and the USChamber of Commerce.

“This quarter’s decline in confidence is an important development that is worth monitoring closely,” Jessica Moser, senior vice-president and head of MetLife’s Group Benefits Small and Specialty Business Organization said in a press release. “It is not yet clear whether it is a blip or the start of a more alarming trend heading into 2019.”

The bottom line is that if the Republicans are hoping to win the hearts of small business in next year’s election, tax cuts alone aren’t going to cut it.