Economists generally recognize that last year's federal tax cuts
had an immediate and stimulative effect on the U.S. economy. But if
the positive impact of those cuts is going to be sustained in 2004,
then they must significantly affect America's small businesses.
Small business is not only a key driving force in U.S. economic
growth, but also a major source of new job creation.
Expectations are also important: Do America's small business
owners believe that their businesses will benefit from the
federal tax cuts, and do they expect state and local governments to
follow suit by cutting taxes? How do small business owners think
that the federal, state, and local tax changes will affect their
businesses over the next 12 months? The Wells Fargo/Gallup Small
Business Index survey* provides some important insights regarding
these questions.
Perceived Benefits of New Tax Package
One in five small business owners feel that their businesses
will benefit from the new tax package a great deal (3%) or a
moderate amount (18%). Roughly a third indicate that the company
will benefit a little (32%) and about another third say it will not
benefit at all (36%).
State and Local Tax Expectations for the Next 12
Months
Overall, two in three small business owners (67%) think that the
business taxes in their state will increase in the next 12 months.
Slightly more than one in four (27%) think business taxes will
remain the same; only 4% expect a decrease.
In general, most small business owners (58%) think that business
taxes in their local communities will also increase over the next
12 months. Thirty-seven percent say they think local business taxes
will remain the same, while just 2% expect business taxes to
decrease over the next 12 months.
Net Small Business Tax Expectations for the Next 12
Months
Overall, nearly half of small business owners (45%) say that
they expect state and local tax increases to more than
offset the recent federal tax cuts, leaving them with higher taxes
over the next 12 months. About one in three (35%) say that state
and local tax increases will simply offset the federal tax cuts.
Only 12% of small business owners expect a net tax reduction in
their federal, state, and local taxes combined.
Bottom Line
That most of America's small business owners currently do not
believe they will benefit in 2004 from last year's federal tax cuts
is not good news for the U.S. economy, given the importance of
these individuals' confidence levels to the country's overall
economic growth. If policy-makers want to maintain the momentum of
that growth, they should work to change these perceptions early
this year.
*The Wells Fargo/Gallup Small Business Index is based on a
nationally representative random survey of 591 small business
owners from across the United States having $20 million or less in
annual sales over the period of Aug. 5 to Aug. 20, 2003. For
results based on this total sample, one can say with 95% confidence
that the margin of error is ±4 percentage points.
