Small biz trade groups cautiously favor tax reform

WASHINGTON — Trade associations representing independent small business in the U.S. say they are "encouraged" by the federal tax reforms proposed recently by Republicans in Congress, but caution that there still are issues affecting small business that need to be addressed.

One association, the Small Business Majority (SBM), claims the proposed changes miss the mark when it comes to small business owners, very few of whom would benefit from reductions in the top individual income tax rates.

The National Federation of Independent Business (NFIB) and National Small Business Association (NSBA) are generally in favor of the reform package, noting it calls for reducing taxes on "pass-through" companies — enterprises that pay their taxes through the individual income tax code rather than through the corporate code — which they said represent the majority of American small businesses.

The NFIB noted this is the "beginning of a long process, and we look forward to more details. NFIB will remain engaged to ensure that tax reform starts with small business. Small businesses need meaningful reform that lowers their tax bill, allows them to invest in their business, create jobs and grow the economy."

Todd McCracken, president and CEO of the NSBA, said: "Our top priorities for any tax reform are rate parity for all types and sizes of businesses, increased simplicity and long-term stability."

Mr. McCracken noted that while the "unified framework" of the proposed changes moves the country closer to "rate parity," the proposal leaves a disparity by offering pass-through entities a 25-percent tax on business income while dropping the corporate rate to 20 percent.

The NSBA also is concerned that current expensing provisions for smaller companies — which are permanent — are not made temporary or phased-out, and that smaller businesses will be able to continue deducting their interest expenses, a "significant and necessary business expense for many."

On the other hand, John Arensmeyer, CEO of the SBM, pointed out that cutting the top individual tax rate to 35 percent from 39.6 percent and the top pass-through rate to 25 percent would primarily help Wall Street hedge fund managers and wealthy lawyers rather than small businesses.

"It is a myth that top individual tax rates adversely harm Main Street small businesses," Mr. Arensmeyer said. "In fact, the current top rate is paid by less than 2 percent of pass-through business owners. Nearly nine in 10 businesses that pass through their income already pay at the 25 percent rate or less."

Cutting the corporate rate to 20 percent would help some small business owners, he added, but doing so without getting rid of corporate tax loopholes would risk increasing the deficit and continue to put small businesses at a disadvantage.

Instead, the SBM recommends reducing nominal corporate tax rate to 28 percent, thus reducing the actual tax rate for most C-Corp small businesses, while eliminating unfair, inefficient tax loopholes in a manner that ensures a net revenue increase to bring down the deficit and fund key programs.

"We need lawmakers to focus on a bottom-up approach that will help all businesses, as well as level the playing field so small business owners are not stuck footing the bill when large corporations take advantage of loopholes and avoid paying their fair share," Mr. Arensmeyer said.

In addition, the U.S. Chamber of Commerce voiced support for the effort to reform the tax code but reserved judgment on the plan's specifics, saying ultimately it will judge any tax reform package on "whether it improves economic growth."