A national small business advocacy group says a now-permanent federal tax deduction will provide significant financial relief to small businesses in Connecticut, while also enabling them to add thousands of jobs.
A national small business advocacy group says a now-permanent federal tax deduction will provide significant financial relief to small businesses in Connecticut, while also enabling them to add thousands of jobs.
The National Federation of Independent Business (NFIB) on Wednesday released reports for all 50 states outlining the impact of the 20% Small Business Deduction, a provision of the 2017 federal tax overhaul that was set to expire in 2025.
Congress approved legislation to make the deduction permanent and it was signed into law by President Trump last July.
In Connecticut, NFIB projects the policy could lead to about 14,000 additional jobs annually over the next decade, along with an annual GDP increase of $887 million during that period.
The deduction allows many pass-through businesses — including sole proprietorships, partnerships and S corporations — to deduct up to 20% of their qualified business income. Because most small businesses are structured this way, NFIB said, the policy is particularly important in states like Connecticut, where taxes are relatively high.
According to the group’s Connecticut impact sheet, the state is home to more than 381,000 small businesses employing roughly 726,000 workers. NFIB argues the deduction helps offset what it describes as a tax disparity between small businesses and larger corporations.
Without the deduction, NFIB estimates the top effective tax rate on pass-through business income could reach about 46.6% — reflecting the combination of the federal top individual rate of 39.6% and the state top individual rate of 6.99% — compared with roughly 29.25% for C corporations.
The group says the deduction narrows that gap and “levels the playing field” for small firms competing with larger companies.
“Small businesses in Connecticut depend on policies like the 20% deduction to remain competitive and continue investing in their communities,” NFIB said in its report.
The organization also contends that making the deduction permanent provides greater certainty for business owners, allowing them to plan for hiring, expansion and capital investments without concern over a looming tax increase.
While praising the deduction being made permanent, NFIB Connecticut State Director Andy Markowski cautioned state lawmakers “to avoid legislation that would derail these tax savings at the state level."
