Why Small Businesses Are Worried about Tax Reform

by Lynnea Bylund on May 17, 2011 · 1 comment

A growing roster  of associations representing small and closely held businesses are pressing leaders of the tax-writing committees in Congress to not omit them in any upcoming tax reform proposals.

IRS small business tax One letter, addressed to the chairmen and ranking members of the House Ways and Means Committee and the Senate Finance Committee, said they “… should avoid taking a corporate-only approach to financial reform.” The groups signing that communique, include the National Federation of Independent Business, the U.S. Chamber of Commerce, the Financial Planning Association, the National Association for the Self-Employed, and the International Franchise Association, and said “…the reforms should also apply to flow-through businesses structured as S corporations, partnerships, LLCs and sole proprietorships.”

“As organizations representing millions of closely-held employers across the country, we are writing to express our strong opposition to any tax reform plan that will negatively impact 95 percent of America’s businesses,” they wrote.

“Every day, nearly 70 million Americans wake up and go to work at a firm organized as something other than a C corporation,” they added. “These ‘flow-through’ businesses, structured as S corporations, partnerships, LLCs, or sole proprietorships, contribute more to our national income and our job base than all the publicly-traded corporations combined.”

From Accounting Today

The letter goes on warn against any approach to tax reform that would put small businesses at an economic disadvantage. It refers to a recent study by Ernst & Young of tax reform and flow-through businesses (see Study Warns of Tax Reform Impact on Flow-Through Businesses).

“Despite this economic importance, the published reports indicate the Treasury Department intends to pursue a tax ‘reform’ process that would benefit C corporations at the expense of flow-through businesses,” they wrote. “According to recent estimates by Ernst & Young, this approach to tax reform could increase taxes on flow-through job creators of all sizes by at least $27 billion per year, making it more difficult for them to raise capital and hire new employees.

“Moreover, reports suggest that the Treasury plan may force certain flow-through employers to pay taxes as C corporations despite the fact that the C corporation structure subjects U.S. firms to double taxation, thereby making them less competitive,” they said. “As the Ernst & Young study makes clear, subjecting more firms to C corporation taxes ‘raises the overall cost of capital in the economy, which reduces capital formation and, ultimately, living standards.’ Recent testimony before the Ways & Means and Finance Committees has reinforced this point.

“It is hard to see how a significant tax hike on a large segment of this country’s employers will improve the job market or make U.S. businesses more competitive.”

{ 1 comment }

1 Azia August 9, 2011 at 12:38 pm

Articles like this make life so much simpler. Small businesses have much to fear the so-called tax reform.

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