Minnesota small-business owners eye tax cut tangled in sprawling federal bill

FOREST LAKE and WASHINGTON — A crowd of small-business owners sat in an accounting office in suburban Forest Lake last week, ready to discuss something they’d been waiting for: their share of the roughly $3.8 trillion tax bill inching through Congress.

“My husband and I were in manufacturing for 40 years,” said Jenny Lorge, a real estate agent and economic development commissioner. “We would not get into it again. The regulations are overwhelming.”

Lorge was among several Minnesotans who gathered to talk about the implications of a once-in-a-decade tax cut on the federal level. They weren’t unified on the bill’s other details, though. For example, while Lorge said she supports continuing tax benefits for small businesses, she opposes the current bill’s restrictions on Medicaid and food stamps, as well as the absence of a tax exemption for Social Security.

But the individual tax cut portions, most agreed, were either long overdue or involved credits they’re desperate to extend.

In Washington, pieces of the sprawling bill — a priority of President Donald Trump and Republicans in Congress — passed out of key committees on Capitol Hill this week before hitting a snag in the House Budget Committee on Friday.

But, currently as written, the bill extends 2017 income tax cuts and eliminates through 2028 taxes on tips and overtime. There’s also a $4,000 deduction for seniors and other deductions for small businesses.

To pay for these revenue losses, the legislation, which Republicans aim to pass through the reconciliation process, slashes $1.5 trillion from entitlement and green energy programs.

For Minnesotans, the bill includes a plan to pave the way for mining near the Boundary Waters Canoe Area Wilderness.

In committee votes, the bill has drawn almost no support from Democrats. But Republicans have kept drumming that Congress’ failure to extend the 2017 tax cuts, which expire at year’s end, would result in a giant tax hike for many Americans.

“The biggest thing is the extension of [2017 tax cuts] because most small businesses are operating as a sole proprietorship or within a flow-through structure,” said David Horn of the University of Minnesota’s Carlson School of Management.

Horn, director of the school’s Master of Business Taxation program, said a small business often refers less to its size and more to its structure.

The hair salon, coffee shop and family farm are all under the small business umbrella, which employs more than 46% of Minnesota workers, according to the U.S. Small Business Administration.

“Their business income is just getting taxed on their individual returns,” Horn said of small-business owners. “So if your individual rates go up, your business income is going to get taxed at a higher rate.”

The roundtable in Forest Lake, which was hosted by Minnesota’s GOP U.S. Rep. Pete Stauber, drew such Main Street staples as real estate agents and car mechanics, as well as land developers and a wellness coach.

“We are looking for certainty and consistency, not the back and forth,” said Stauber, whose district stretches from the northern suburbs of the Twin Cities to the Canadian border, including the Iron Range. “It is hard for a small business to know if they are going to invest or not.”

Wendy Rychley, a tax accountant in Forest Lake, said the complications of tax law overwhelm a lot of her small-business clients.

“I see the chaos that has been created because of the constant fluctuations of the tax code like we are facing now,” she said.

Curiously, tax experts said, that might not end with the Republicans’ bill. The legislation would mark the return of the bonus depreciation, which allows for the purchase of business assets from a tractor to a plane. Republicans would also expand the qualified business income deduction, a boon to small businesses.

But none of this would reduce tax preparers’ paperwork.

“I understand that this is a good talking point, that this [package] will simplify taxes,” said Kyle Pomerleau, a senior fellow at the American Enterprise Institute in Washington. “But there is no evidence that this will be the case.”

If anything, Pomerleau said, the changes would make filing more cumbersome.

American small businesses saw mixed results under former President Joe Biden’s administration.

Coming out of the pandemic, when many people worked remotely, business applications surged. But in 2024, firms employing fewer than 10 workers lost jobs, partly because high borrowing rates and inflation made doing business more costly.

During last year’s presidential election campaign, conventional wisdom was that Trump, as a businessman, spoke the language of commerce and would fix the business environment. But the first months of his second term have been rocky.

On April’s so-called “Liberation Day,” Trump announced high tariffs on countries across the globe. Many Minnesota small businesses panicked and abandoned paid-for merchandise in Chinese factories. Others planned to leave months worth of new cargo shipments at U.S. ports, saying they could not afford the abrupt tariff hikes on their Chinese imports.

One Minnesota small-business owner, Beth Benike of Zumbrota-based Busy Baby, gained national attention for how tariffs on Chinese goods exploded the cost of her baby mat products. This week, Benike said she can’t trust tariffs will stay at 30% following the recent 90-day pause.

“The administration has been making drastic changes to policies pretty frequently,” she said.

The U’s Horn said businesses experience all these forces — from trade to tax cuts — in real time.

“By no means, if your primary supplier is based in China, is this [tax cut] going to offset the impacts of tariffs,” he said.

The budget bill still must pass the full House before going to the Senate, but on Friday afternoon, it hit a wall. The legislation was blocked by conservative Republicans on the Budget Committee who wanted deeper cuts to entitlement programs.

But the measure is central to Republicans’ promise to Americans who put them in charge of the White House and Congress in November.

In southern Minnesota, Andy Wilke, the executive vice president of Greater Mankato Growth, pointed to small-business deductions — particularly for farm equipment — as helpful to his region’s economy.

But he acknowledged the tax bill’s central calculus — tax cuts that trim the social safety net — lands differently for the many health care institutions in south-central Minnesota.

“It’s so complex and so broad,” Wilke said. “Our elected officials have to wrestle with this.”

Back in Forest Lake, Ben Mildon, owner of A1A Auto Service, said “certainty in taxing” could help him expand his business and hire new techs.

But he still didn’t have a clear picture of the whole bill.

“I am mostly here to learn, I guess,” he said at the roundtable.