Survey: Small Businesses to Invest Tax Savings in Wage Increases, Hiring

Small and independent business owners believe the recently passed Tax Cuts and Jobs Act will have a positive effect on their businesses and have plans to invest in hiring and increase employee compensation, according to a recent survey conducted by the National Federation of Independent Business (NFIB).

The survey provides a baseline reading on small business owners’ initial responses to the tax reform law. The survey found the creation of the up to 20 percent small business income tax deduction provision (Section 199A) is viewed as important to most small business owners.

“As small business owners learn more about the provision, we expect optimism and growth to increase further,” said Brad Close, NFIB’s senior vice president of public policy.

Small business owners overall are bullish about business and the impact of tax reform, according to the survey. The vast majority (76 percent) of small business owners believe the current business climate is heading in a positive direction. Three-fourths believe the tax law will positively impact their business. Eighty-seven percent think the new tax law will have a positive impact on the general economy.

Small business owners anticipating a lower tax bill next year plan to allocate the extra money across a number of business activities. More than half (51 percent) of small business owners expect to pay less in federal income taxes next year. Among these respondents:

• 44 percent plan to increase employee compensation
• 27 percent plan to use the extra savings to add employees

The fact that owners plan to add employees is to be expected, according to NFIB, as 35 percent of owners reported unfilled job openings in April 2018.

Eighty-four percent of small businesses in the NFIB survey are structured as pass through businesses (S corporations, LLCs, sole proprietorships, or partnerships). Discussion of the Section 199A provision provokes a strong, positive reaction among small business owners:

• 84 percent of small business owners say the creation of Section 199A is important
•  55 percent say the provision is very important
•  29 percent considering it somewhat important

Meanwhile, 85-percent say the changes to the individual income tax brackets and rates are an important provision in the tax law, with 45 percent of small businesses saying they are very important and another 40 percent saying they’re somewhat important.

Although there was discussion during the tax reform debate on whether tax code changes would increase the rate of business owners changing the legal structure of their businesses, very few plan to change their businesses’ legal structure over the next one to three years in response to the new tax law. Only 4-percent plan to do so with about 83-percent planning no change.

The survey was conducted with a random sample of 20,000 NFIB members between February and April. The survey was conducted by mail, with an initial mailing and a follow-up mailing three weeks later. NFIB collected 2,544 usable responses, a 13 percent response rate. Ninety-five percent of respondents were the owner of the business, while 4 percent reported being a manager. NFIB membership spans most major industry categories.