Local opinion: Small businesses need Congress to extend tax cuts

The House recently approved a resolution that opens the door to extending provisions of the Tax Cuts and Jobs Act (TCJA) — federal legislation that was initially signed into law in 2017. The provisions are set to expire at the end of the year, which means Congress needs to act, or small businesses across Arizona will come face-to-face with a tax hike in 2026.

Some of Arizona’s elected leaders in Washington — like Sen. Mark Kelly (D-AZ)— argue the law is nothing more than “tax cuts for the rich.” But that interpretation is far from reality. According to an analysis from the Brookings Institution, the TCJA has “lowered individual income taxes on average for all income groups,” with Arizona residents saving more than $1,000 per year.

But beyond the impact of the TCJA on individuals, small businesses are among the law’s biggest beneficiaries — a community that supports more than 40 percent of Arizona’s workforce. As a small business owner myself, I’ve experienced the tax cuts-induced economic surge firsthand.

At HT Metals, which is a stainless-steel supplier in Tucson, financial savings associated with the tax cuts were reinvested back into the business to improve efficiency. The extra budget wiggle room freed up money so we could purchase new equipment — helping our growing staff deliver quality products ahead of schedule.

What specific provisions in the TCJA gave a helping hand to Main Street? One, the law lowered rates for pass-through small businesses, which represent a majority of Main Street operations in the state. Two, it created a 20 percent small business tax deduction. And three, the legislation allowed business owners to immediately expense investments in capital equipment like new machinery or upgraded facilities.

Like me, millions of businesses across the country took advantage of these changes and were pumping tax cut savings into expanding operations and creating jobs. And the combined result was one of the strongest economies in years. Real wages grew at a record two-decade pace following the law’s implementation in 2018 and 2019, while the state unemployment rate fell to a decade-low.

The strong employment, combined with business growth, boosted demand for everything ranging from clothing to appliances — creating a feedback loop that continued to fuel the economy. At my business, for example, I noticed a huge uptick in orders for raw materials.

Failing to extend the tax cuts in this year’s budget reconciliation package would be like pulling the rug out from underneath Arizona’s 678,000 small businesses and their more than one million employees. In fact, just the possibility of the tax cuts disappearing is having a chilling effect on the economy. Businesses thrive on certainty; without it, entrepreneurs must plan for the worst.

The biggest roadblock to getting the tax cuts over the finish line in Congress are misleading arguments that suggest the policy will contribute to a ballooning national debt. But don’t listen to everything you read on the internet or watch on television.

Yes, in a vacuum, lower tax rates equal less tax revenue. But the economy doesn’t function in a vacuum and that argument doesn’t take into account other confounding variables. It would be akin to suggesting McDonald’s could triple their profits if it tripled its menu prices. That obviously doesn’t consider changing consumer preferences caused by the price changes; many would decide to purchase fewer hamburgers.

If history is any indication, reducing tax rates actually corresponds with increasing government revenue because economic growth more than makes up for lower rates. Following the initial passage of the TCJA, for example, inflation-adjusted tax revenues significantly grew rather than fell. IRS collections are up more than $1.5 trillion annually.

The House has taken the first step towards extending the tax cuts, but Congress still has a long road ahead. Arizona’s elected leaders in Washington should help to get the job done. Or else Main Street could take a tumble.

Carlos Ruiz is the owner of HT Metals in Tucson and a partner of the Job Creators Network Foundation.