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Proposed Corporate Tax Reforms and Small Business

By | 02.29.12

Proposed Corporate Tax Reforms and Small Business

Recent tax reform proposals in Washington have been aimed at eliminating corporate tax loopholes and then turning around and using that revenue to cut the corporate business tax rate from 35 percent to 28 percent. However, many small business advocacy groups are claiming that this will do little to help small businesses in the U.S.

The main concern for small businesses is that the proposed lower rate would only apply to those companies formally organized as corporations, or C corps, and that therefore fall into the corporate tax bracket—a group that makes up less than 6 percent of all business tax returns across the nation. Businesses that are structured in any other way (S corps, sole proprietors, LLCs, and so on) would continue to have their earnings grouped into the owner’s personal income and therefore be taxed at individual income tax rates. What this essentially means is that this reform would eliminate tax breaks for businesses while failing to lower taxes on 94 percent of those businesses—a situation that would inadvertently end up raising taxes on small and medium sized businesses.

Another concern of small business advocates centers around the proposed global minimum corporate tax rate, which is meant to prevent companies from avoiding tax responsibilities by pushing money into offshore havens. But many feel, instead, that this move would have the opposite effect and turn into a permanent haven for those corporations seeking to avoid their tax obligations.

However, many advocates agree that there are positive changes included in the proposed reform as well—such as permanent deductions for capital investments and research and development. And by closing some of the loopholes, the reform will force larger corporations to carry more of their share of the tax burden overall. But many feel that in order to bring true relief to small businesses, individual tax codes need to be reformed alongside corporate ones.

References

Dixon, Kim. “Obama Urges Corporate Tax Cut, Closing Loopholes.” Reuters. 2/22/12. (2/29/12.) http://www.reuters.com/article/2012/02/22/us-usa-tax-corporate-idUSTRE81K25N20120222.

Tozzi, John. “Why Corporate Tax Cuts Won’t Help Small Business.” Bloomberg Businessweek. 2/27/12. (2/29/12.) http://www.businessweek.com/articles/2012-02-27/why-corporate-tax-cuts-wont-help-small-business.

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