The nation is witnessing a pattern develop in one vital economic measurement, and it’s one that U.S. Sen. Steve Daines and U.S. Rep. Greg Gianforte can take some credit for.
As it has done for the last 45 of its75 years, National Federation of Independent Business, the nation’s voice of small business, releases its Small Business Economic Trends report, which takes the pulse of Main Street operations – not opinions – relative to the economy. Today, it’s the largest, longest running data set on small-business economic conditions available, considered a gold-standard measurement by presidential administrations, Congress, the Federal Reserve, and state policymakers across the nation.
Released the second Tuesday of every month, the SBET’s primary value is anticipating short-run fluctuations in economic activity. The 10 components making up the report are also called the Optimism Index.
The last four headlines, from February 2018 back to December 2017, that NFIB has attached to its latest SBET surveys paint a picture of a healthy economy that would appear to have some permanence to it.
- Record number of small-business owners say now is a good time to expand
- Average monthly optimism sets all-time record in 2017
- NFIB’s Optimism Index soars past 107, closes in on 1983 record
- Small business hiring plans reach all-time high in November.
The good economic news infusing the recent SBETs is not by accident; it’s by design. It started with President Trump’s executive orders lifting the yoke of regulations off the backs of businesses, most important of which was his order to federal agencies to purge two regulations for every new one they wanted to create.
The second spur putting the charge in the economy was Congress’ passage of the Tax Cuts and Jobs Act last December, which Daines and Gianforte had the stiffness of spine to support in face of the daily criticism they had to endure. Either could have pulled the old tactic of using one component of it as a public relations ploy to vote against the entire Act. But they didn’t, and today there is not a middle-class Montanan who isn’t benefiting from it.
No small thing, small businesses. They account for 99.3 percent of all Montana businesses, according to the U.S. Small Business Administration, and what the new law did, most importantly, is reduce taxes on Main Street firms organized as pass-through businesses, of which, according to the Tax Foundation, Montana has a higher amount of, 69 percent, than the national average of 55 percent.
Pass-through businesses include sole proprietorships, partnerships, LLCs, S-corps. So, pass-throughs pay at the individual tax rate, not the corporate tax rate. The Tax Cuts and Jobs Act now:
- Gives a 20 percent passthrough deduction for all businesses below $315,000 in taxable income with certain limitations and exclusions phased in over the next $100,000
- Doubles for eight years the standard deduction to $12,000 for individuals and $24,000 for joint-filers
- Raises for small-business owners thinking of buying new equipment Section 179 expensing to $1 million per year from $500,000. Business expansion is a vital step toward more hiring
- Provides Montana’s family farmers with some assurance they can pass their life’s work on to their children by keeping from the tax man’s grasp roughly $11 million per individual filer and $22 million per joint-filers.
- Expands the ability of small businesses to use the cash method of accounting
When the Senate debated a smaller tax reduction for Main Street businesses, Daines led the fight for the full 20 percent deduction. His knowledge of small business was learned from his father’s construction business in Bozeman, which was an NFIB member. Gianforte, who fought for the act’s passage in the House, also owns an NFIB-member firm.
Great to have representatives with a fundamental understanding that small businesses are not smaller versions of big businesses. But enough politics for the moment. The economy is doing extremely well, and two tough Montanans deserve some of the credit.