How corporate tax breaks could hurt small business

Corporate tax reform is looming large within the Republican Party. All the major presidential candidates are pushing for it, and at least one Republican on the congressional supercommittee wants to lower corporate rates in exchange for closing loopholes and deductions. Democrats and liberals have opposed corporate tax breaks for the obvious reasons, arguing priorities should lie with the poor and middle-class households. But small business advocates have begun speaking out against corporate tax reform as well— at least if it’s enacted as a stand-alone change—arguing that they could end up shouldering the burden of tax breaks for big businesses.

(SOURCE: LINDA DAVIDSON/THE WASHINGTON POST) At an event held by Sens. Ron Wyden and Dan Coats on Wednesday, small business lobbyists emphasized that they don’t oppose lowering corporate tax rates—but stress that doing so in isolation could force them to pay the price for big business tax breaks, without benefiting from the advantages. “We certainly would be very supportive of corporate tax reform...but doing so as a stand-alone would be devastating to small business, and particularly the construction industry,” said Geoff Burr, a lobbyist for Associated Builders and Contractors. Burr said that some 80 percent of construction contractors pay taxes at the individual rate, as do many of the small businesses that employ about half of all Americans. Small businesses complain that they’re already disadvantaged by extra, onerous requirements under the current tax code—and they say simplifying the code for corporations alone would be unfair.

“There’s a huge disparity between biggest corporations and small business. Our worry is that corporate community gets the rate as low as possible—I certainly don’t begrudge them for doing so—but you could wind up eliminating tax breaks that affect all companies,” said Todd McCracken, president and CEO of the National Small Business Association. Republicans like Gov. Rick Perry and Rep. Dave Camp— a member of the supercommittee—have recently proposed that lower corporate tax rates should be paid for by closing business tax loopholes, deductions, and other special advantages. But many of those business loopholes and deductions affect small-businesses as well, so closing them could force them to bear the cost of lower rates that strictly affect big businesses, said McCracken. Instead, his group is pushing for the kind of comprehensive tax reform that Wyden and Coats have tried to craft—“no business left behind,” in the words of one handout at the event.

Small business groups aren’t singularly critical of Republican priorities: another big priority for many advocates is the extension of the Bush tax cuts, which benefit many small businesses that file individual tax returns, as well as corporate ones. Burr estimates that the vast majority of small business owners who belong to his trade association file individual taxes at the highest marginal rate. So the argument that the Bush tax cuts simply benefit “millionaires and jet owners”—the typical liberal critique of the policy— “is not helpful,” Burr concludes.

Corporations, for their part, could argue that they’re a lot better at creating jobs than small businesses, so perhaps they should be given higher priority. Of small companies that stayed in business between 2000 and 2003, for example, 80 percent didn’t add a single employee, as my colleague Brad has explained. But perhaps the cumbersome tax code and high tax rates are precisely part of what’s holding small businesses back in the first place.