Recently, Obama proposed eliminating corporate tax loopholes and, in turn, using that money to cut the business tax rate from 35% to 28%. According to a statement from Obama, “The tax code is unnecessarily complicated and forces America’s small businesses to spend countless hours and dollars filing their taxes.” The only problem is that this plan to simplify the business tax code and cut rates is igniting outcries from small business groups.
The lower tax rate would only apply to businesses organized as C corps, which pay corporate income taxes. C corps make up less than 6% of business tax returns and the other businesses, which includes partnerships, sole proprietors, S corps and limited liability companies, have their business earnings flow through to owners’ personal income and are taxed at individual income tax rates.
If you eliminate tax breaks and fail to lower individual income tax rates, then you could, in essence, raise taxes on some small business owners according to President of the National Association of Small Businesses Todd McCracken. McCracken added, “The business deductions are relatively unified. A deduction’s a deduction, whether you’re a C corp or a sole proprietor, for the most part.”
The National Federation of Independent Businesses, which frequently goes against the Obama Administration and its plans, has panned the new proposal and said in a recent statement, “The focus should be on individual rate reform.” However, not every small business lobby agrees and some are even praising the plan and noting that a reform to the tax code will eliminate tons of loopholes that consistently leave small businesses paying an unfair share of taxes.
McCracken has stated that the plan itself isn’t very specific and that it looks like a mixed bag. McCracken says he favors reform that would deal with both individual tax code alongside corporate taxes. He also noted that chances of any major tax plan passing Congress this year are slim.
Source: Bloomberg Businessweek – Why Corporate Tax Cuts Won’t Help Small Businesses