Small businesses need tax reform, not wholesale tax cuts

While hosting small business owners at the White House recently, President Donald Trump didn’t say much about his tax policy plans. The few words he offered, however, suggest that small business owners like us are going to be disappointed when Republican tax proposals are formally unveiled this fall.

“[My administration is] pursuing bold tax cuts so our companies can thrive, compete and grow,” Trump said at the small business event.

{mosads}What President Trump and his allies do not understand is that small businesses don’t want or need tax cuts in a vacuum. Instead, we want meaningful tax reform that will even the playing field for all businesses, large and small.

President Trump has indicated that he intends to enact tax policies that will only benefit the wealthiest businesses. For example, the president said he wants to lower the top pass-through rate to 15 percent. While it is true that 82 percent of small businesses pass through their profits and losses to their personal returns, the vast majority already pay 15 percent or less.

In fact, according to data from the Tax Policy Center, only 12.6 percent of all small businesses pay more than a 25-percent rate. Importantly, virtually no small business owners making less than $100,000 would get any benefit from the proposal.

The pass-through rate reduction idea is far from the only problem with President Trump’s plans. His suggestion to cap the corporate rate at 15 percent is also a bad idea because it would add a whopping $5.5 trillion to the deficit over 10 years without closing any of the corporate tax loopholes that put businesses like ours at an unfair advantage.

Then there is the estate tax, which President Trump wants to eliminate. The argument for killing off the so-called “death tax” is often based in the false narrative that small, family businesses are unfairly burdened when those businesses are passed on to the next generation.

In reality, the estate tax, which only applies to estates valued above $11 million for married couples, and $5.5 million for single people, impacts only about 50 of our nation’s 28 million small businesses and small farms.

Instead, small business owners like us want tax reform that will level the playing field so we are not stuck footing the bill when large corporations take advantage of loopholes and avoid paying their fair share.

In fact, Small Business Majority’s polling found that 90 percent of small business owners believe big corporations are using loopholes to avoid taxes that small businesses have to pay. Similarly, nine out of 10 small business owners believe that U.S. multinational corporations’ use of these loopholes to shift U.S. profits overseas is a problem.

One way to address the concerns of small business owners is through repatriation, but the White House’s repatriation proposal to bring back to the U.S. funds that are kept offshore at a reduced tax rate is problematic, because it fails to address the underlying problem of allowing multinational corporations to defer paying taxes on foreign profits in the first place.

This loophole costs the U.S. Treasury Department more than $1 trillion over 10 years, and only serves to benefit 50-60 multinationals at the expense of small businesses. Failing to address the underlying issue will mean that this problem will continue to arise again and again.

If President Trump is serious about real tax reform, he should make some of the following recommendations:

• Eliminate unfair corporate loopholes while responsibly lowering business tax rates in a manner that ensures a net revenue increase;

• Ensure any changes to the corporate and personal tax code have a significant, direct benefit to small businesses instead of large businesses and hedge funds;

• Crack down on the ability of large corporations to reduce their tax burden simply by parking their profits offshore or moving their headquarters outside the country; 

• Uphold the estate tax, which impacts virtually no small businesses or small farms.

Adopting just one of these principles would go a long way toward helping America’s small businesses compete and create more jobs. Isn’t that supposed to be the point of business tax reform?

Anne Zimmerman is owner of Zimmerman and Co. CPAs in Cincinnati. Mike Brey is president and CEO of Hobby Works in the Washington, D.C., area. Both are members of Small Business Majority’s Small Business Council.

The views expressed by contributors are their own and not the views of The Hill.