The 2017 Tax Cuts and Jobs Act grew the economy, helped small businesses reinvest in their employees and local communities and reduced taxes for workers and families providing them with greater financial security. However, key parts of this tax law expire at the end of 2025, raising taxes on small businesses and workers.
Congress must act to make key pro-small business, pro-worker provisions enacted in the 2017 tax cuts permanent and retain existing pro-growth policies.
As part of the tax bill NAW supports multiple policies including:
Pro-Small Business Tax Cuts: Making the 199A small business deduction permanent for S-corporations and other passthroughs.
Providing Workers Tax Cuts: Making individual tax provisions permanent including the lower tax rates, doubled standard deduction, and double child tax credit.
Pro-Growth Tax Cuts: Preserving the Corporate Tax Rate and restoring R&D expensing.
Pro-Family Business Taxes: Repeal the death tax on privately owned, family businesses.
Pro-Supply Chain Tax Policies: Preserve the LIFO inventory accounting system.
Making Tax Cuts Permanent Will Allow Wholesaler Distributors to Continue Providing Quality, High-Paying Jobs
There are over 250,000 wholesale distribution companies that operate across North America, including all 50 states. The majority are small or medium sized businesses and 81% of companies in the industry have less than 20 employees. NAW members invest heavily in their workforce by providing extensive benefits and career development programs including health & retirement benefits, formal profit-sharing, quarterly cash bonuses and personal benefits such as financial workshops and volunteer paid time off.
As of the end of 2024, wholesaler distributors employed almost 6.2 million workers, according to the Bureau of Labor Statistics. The average industry nonsupervisory wage is $31.62, higher than the national average. 85% of employees have access to a retirement plan, while 89% have employer sponsored healthcare, 93% have paid vacation, and 90% have paid sick leave.
The 2017 tax cuts also succeeded in creating the strongest economies in modern history. The unemployment rate hit 3.5% in 2019, a 50-year low and there were more job openings than job seekers for 24 consecutive months. Real median household income increased by $4,400 in 2019, or nearly 7% , which exceeded gains during the entire eight years of the Obama presidency, where wages grew just $3,000 or 5%. According to the Atlanta Fed, the bottom 25% of wage earners experienced wage growth faster than the top 25% of wage earners, and the poverty rate declined to 10.5%, the lowest rate in decades.
Making key tax provisions from 2017 will help the economy grow and will allow businesses to continue offering their workers high wages and extensive benefits.
Failing to Act Will Raise Taxes on Small Businesses Across the Country
The majority of businesses, including most wholesaler-distributors, are organized as pass-through businesses (S-corporations, LLCs, sole proprietorships, or partnerships) and pay taxes through the individual income tax section of the code, rather than the corporate tax rate. Over 95% of businesses in the U.S. are pass-throughs and collectively employ more than 78 million Americans.
These businesses benefit from the 20% Section 199A small business deduction, created by the TCJA. In combination with the reduction of the individual tax rate to 37%, the TCJA lowered the top tax rate on pass-through businesses to 29.6%.
According to IRS Statistics of Income (SOI) data, almost 25.7 million taxpayers claimed the 199A deduction in tax year 2021. The deduction currently supports 2.6 million jobs, $161 billion in annual employee compensation, and $325 billion in GDP when accounting for direct, supplier, and consumer economic activity, according to EY.
With the 199A small business deduction in law, S-corps and other pass-through businesses have effective tax rates of between 27% and 34%, rates comparable to C-corporations, which face effective rates between 25% and 31%. On the other hand, if 199A expires, passthroughs will face significantly higher effective rates as high as 41%.
The 199A deduction has helped small businesses including wholesaler-distributors reinvest in their local communities and their workforce by allowing these businesses to create and maintain quality, high paying jobs with extensive benefits that help grow the economy.
Allowing Tax Cuts to Expire Will Also Raise Taxes on Workers and Families
The 2017 Tax Cuts helped workers and families by providing substantial individual tax cuts including reducing income tax rates, raising thresholds at which higher brackets phased in, doubled the standard deduction, and doubled the child tax credit. This provided benefits to the six million workers employed by the Wholesale Distribution industry.
The year after passage of the TCJA, a family of four earning $73,000 saw a tax cut of more than $2,000, a 58 percent reduction in federal income tax. A single parent with one child making $41,000 saw a tax cut of $1,300, a 73 percent reduction in federal tax.
These tax cuts provided especially strong tax reduction for lower income taxpayers. According to IRS SOI data, Americans with adjusted gross income (AGI) of $50,000 to $100,000 saw a reduction in average tax liabilities of over 13% between 2017 and 2018, while Americans with AGI of $1 million or above saw a 5.8% reduction.
Congress Must Protect Family-owned Businesses by Repealing the Death Tax
The death tax imposes a 40% tax on family-owned businesses tax every time the next generation takes over the business. Family-owned businesses employ over 60% of the U.S. workforce and contribute over 60% of GDP, which has a significant economic impact.
While there is currently a $13 million exemption on the death tax, this figure is on total assets, not on income and is scheduled to be cut in half at the end of 2025.
Since the tax is imposed on assets, not income, businesses are often forced to liquidate assets such as structures, equipment, and land to pay the tax. This significantly hinders entrepreneurial activity because many family businesses do not have sufficient cash to pay estate tax liabilities.
Wholesaler-distributors hit with the death tax have to take out loans, liquidate existing assets or defer new investments in technology or equipment, hiring new workers or upskilling existing workers, and expanding their business.
In addition, many family businesses below this threshold must devote time and resources to estate planning in the event they may one day have to pay the tax. While this cost may or may not be significant by itself, this is yet another expense faced by wholesaler-distributors on top of complying with existing and new regulations, mitigating supply chain disruptions, and rising costs including energy, health care, and labor costs.
Congress Must Retain Provisions Important for Economic Growth
The 2017 Tax Cuts and Jobs Act reduced the corporate tax rate from 35% to 21%. The corporate tax rate is not just paid by large, publicly traded companies – there are also many smaller, privately owned C-corporations including wholesale distribution businesses across the country. The 2017 tax cuts helped these low-margin small and medium sized businesses hire, raise wages and employee benefits, expand, and invest in their growth, and reinvest in their local communities.
If the corporate tax rate is raised, it will threaten the ability of these businesses to continue investing in workers and the economy, which will be passed on to consumers through fewer job opportunities and higher prices. In fact, recent economic studies have found that consumers and workers bear an estimated 70% to 80%of the cost of the corporate tax rate. Raising the corporate tax rate to 28% would reduce GDP by $1.84 for every $1 of higher revenue.
In addition to preserving the corporate tax rate, lawmakers should restore expensing of Research and Development (R&D). Currently, businesses are required to amortize R&D costs over several years, rather than deducting them immediately. This raises taxes on directly on wholesaler-distributors by increasing the cost of new investments and indirectly by increasing costs for supply chain partners, such as manufacturers and technology companies.
Because of this tax increase, businesses have been forced to delay or forgo new projects, which in turn has suppressed job creation and economic growth. According to a study by EY, requiring R&D to be amortized will reduce annual R&D spending by $4.1 billion in the short term and $10.1 billion annually in the long term. It could also result in between 23,400 to 67,700 fewer jobs in the short term and 58,600 to 169,400 fewer jobs in the long term.
Congress Must Maintain Supply Chains By Preserving the LIFO Inventory Accounting Method
LIFO (last-in, first-out) is an inventory accounting method that has existed since 1939 and used by many companies across multiple industries in the U.S. to determine both book income and tax liability. This system is used by businesses with heavy inventory turnover and helps protect the company and the end consumer from inflation by allowing them to replenish inventory at a cost closest to the current replacement cost. Learn more about LIFO here.
Under LIFO, businesses are required to continually replenish their inventory and if the value of inventory is reduced, the business is hit with a recapture tax which claws back the LIFO tax deferral. This toggle switch ensures that businesses only see a benefit from LIFO if prices are increasing and inventory is constantly being replenished.
LIFO helps shield businesses from high inflation, as we have seen in recent years. Businesses have seen the cost of energy, labor, inputs and inventories increase significantly. LIFO has helped businesses mitigate these rising costs by providing a temporary tax deferral when prices rise, allowing them to replenish inventories and act as a buffer on consumer prices, which is paid back if prices drop.
This system particularly benefits small businesses and businesses with thin capitalization, small profit margins, and those sensitive to rising material or input costs.
Repealing LIFO would impose unprecedented retroactive taxation on businesses by taxing them based on many business decisions made years or decades ago. This retroactive tax would severely harm most companies and potentially bankrupt many of them.
It would force businesses to take on loans and defer new hiring and investment to pay the tax, disproportionately harming small businesses that would not be able to secure loans at favorable rates compared to bigger businesses and undoubtedly leading to business closures and acquisitions.
