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Why Corporate Tax Reform Is Not Enough

Representative Paul Ryan (R-Wisc.) hinted recently that he intends to introduce tax reform legislation to the U.S. House of Representatives in the first quarter of 2014. While we don’t know yet exactly what Mr. Ryan plans to propose, let’s hope that he’s planning to call for more than just the corporate tax reform that President Obama suggested earlier this year. Our economy and our sense of fairness both demand it.

Corporate tax reform makes sense. America’s corporate tax rate is the highest in the developed world, a situation that hinders American competitiveness. Our corporations waste huge sums of money to comply with a maddeningly complex tax code. They face strong incentives to spend their money unproductively, hiring accountants and lawyers to reduce their tax expenditures rather than to boost profits by hiring additional workers and making capital investments. Finally, our high corporate tax rate encourages multinational corporations to park their profits overseas where taxes are lower, rather than repatriate them to the United States, where they can contribute more to domestic economic growth and job creation.

But corporate tax reform alone is an insufficient goal. Broader tax reform is necessary to boost economic growth and job creation. Corporate tax reform fails to address the problems small business owners face with a complex and inefficient tax code because three quarters of them are structured as “pass-through entities” – partnerships, sole proprietorships, limited liability companies, and S-corps that pay taxes as individuals, not as corporations. Moreover, the majority (54 percent) of business income is earned by pass-through entities, the Tax Foundation reports. With small businesses accounting for half of private-sector employment and contribution to GDP, failure of tax reform to affect small company owners will mean that its effects on economic growth and job creation will be muted.

Broader-than-just-corporate-tax reform would also be fairer. Because most small businesses are pass-through entities, they generally face higher marginal tax rates than larger businesses, which are structured as corporations. Moreover, this difference would widen considerably if the corporate tax rates were cut, hitting 14.5 percent if the corporate tax rate were reduced to 25 percent as some have proposed. Requiring businesses that produce the same profits through the same activities to pay different tax rates simply because of their business structure is simply unfair.

Washington risks raising the small-business tax burden if it focuses only on cutting corporate tax rates. Given our current budget deficit, policymakers face pressure to ensure the revenue neutrality of any tax-reform plans. If cutting corporate tax rates would reduce tax revenues, policymakers would face pressure to make up that revenue loss by boosting individual tax rates, or otherwise raise taxes on pass-through entities.

Our complex tax code imposes a heavier administrative burden on small companies than on large ones. Not only do small business owners lack an army of accountants and lawyers to find loopholes and deductions to cut their taxes, but also their tax-compliance costs are higher. Because of economies of scale, per-employee costs of complying with tax laws for companies with fewer than 20 employees are three times higher for small companies than with 500 or more workers the Office of Advocacy of the U.S. Small Business Administration (SBA) reports.

Small business owners and their advocates might would be wise to spend their time this holiday season preparing a message for Representative Ryan. If he cares about small business, his tax reform proposal should go beyond corporate taxes to address the problems that the tax code creates for Main Street.  


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About The Author

Joseph Sabeh Jr.

Please let me introduce myself, I am Joseph Sabeh, Jr a full time licensed professional realtor. I have been with Executive Homes Realty for over 13 years and was trained by my late father and Broker, Joseph Sabeh. I recently incorporated the company and we moved the office to 43513 Mission Blvd just last summer. I could not have found a more honorable place to work. After earning my experience selling high end Ralph Lauren suits and studying business management in southern California, I decided to pursue my dream of selling real estate and working with my father. He had already had such an excellent reputation and established a niche market of high end clientele that catered to the very best. I wanted to become the consummate professional just like him and have strived to become just that being just a phone call or email away from getting back to my client’s immediate needs! Known by my clients for my tenacity, perseverance , and excellence in negotia- tion(Certified Negotiation Expert), I have always strived to meet my clients high demands and goals. As a result of my professionalism, I have achieved an extensive portfolio of referrals from past and present clients. I credit my current values from my upbringing of my parents and the credit is due to them without question. Their integrity, pride, and willingness to sacrifice for the better of my life and my sister’s always left a mark on me that one day I will pass on. Their desire to achieve a better life and live it to the fullest is one that some families dream of and I certainly am appreciative of all of the education and etiquette I have learned from them both. I have sold condos up to 3.2 million dollar homes and I am here for any and all of your future real estate needs and wishing you the very best experience in your future real estate endeavors with me.

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