Closing tax ‘loophole' would hurt honest small firms

Tuesday, June 29, 2010

The June 24 editorial "Fiscal choices for Congress" captured the desperate climate facing lawmakers as Congress weighs extending unemployment benefits. Unfortunately, it repeated the same mistake some lawmakers have made when it characterized a proposed tax hike on so-called S corporations, which the editorial described as "small partnerships such as law firms," as "closing tax loopholes for the wealthy."

The proposed legislation fails to account for the fact that many of my fellow architects -- a quarter of whom are out of work -- are working for S corporations struggling to stave off dissolution.

In this economic climate, Congress's effort to raise taxes on small businesses that form S corporations is clearly misguided. Such corporations create jobs and economic growth by reinvesting hard-earned capital. What's more, this tax hike comes at a time when many people -- out of necessity because of layoffs -- are forming their own home-based consultancies, Web design firms, landscaping enterprises and the like. Many would be caught up in this new tax just as they are planning to set up shop, hire staffers and buy the equipment they need to get started.

Indeed, many architecture firms operate as S corporations because that status gives them the flexibility they need to retain and attract the talent that has kept American architecture the envy of the world. Many of us will be forced to lay off staff or stop hiring to pay the new tax.

Some unscrupulous businesses admittedly use S corporation status to avoid paying their proper share of taxes. They should be caught and punished. This tax hike lumps together the good and the bad, punishing thousands of honest small businesses that follow the rules.

George H. Miller, Washington

The writer is president of the American Institute of Architects.

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