Obama Announces Tax Reform ProposalJuly 31, 2013
On Tuesday, July 30, 2013, President Barack Obama announced a tax reform plan during his stop at an Amazon.com distribution center in Tennessee. The latest in a series of speeches throughout the country on the economy, Obama and the White House touted the importance of corporate tax reform.
Unfortunately, the proposal doesn’t provide much different from past tax reform proposals offered by the administration, specifically closing corporate loopholes, reducing the corporate tax and utilizing that revenue to invest in infrastructure.
On the corporate tax front, the president’s proposal would reduce the top corporate tax rate to 28 percent and institute a manufacturing tax rate capped at 25 percent. The proposal also calls for eliminating various corporate tax loopholes and removing incentives to move business overseas. Exactly what those loopholes are remains to be seen.
One key piece that stands to benefit small business is Obama’s call for increasing expensing to $1 million. NSBA has been a staunch supporter of increased limits on expensing as a way to both encourage small-business investment while helping to stimulate the economy. It hasn’t been identified whether or not this would be a permanent change or simply a temporary hike to the current expensing limits. Providing long-term stability and predictability is a key tenet of NSBA’s tax policy and, while a temporary hike in allowable expensing would certainly help many small businesses, it would do nothing to address the issue of complexity.
Tax simplification was highlighted a number of times in Obama’s remarks, which is something small businesses desperately need. According to NSBA’s most recent Taxation Survey, one-in-four small-business owners report spending 120 hours or more per year on the administration of federal taxes and more small businesses cite administrative burdens as their main problem with federal taxes than do the actual financial cost of federal taxes. Again, details on exactly what that simplification would look like were somewhat sparse.
The concept of closing corporate loopholes and reducing corporate taxes is not a new one and, if done without addressing individual income taxes, could prove harmful to small business.
Because 83 percent of small businesses are pass-throughs, meaning they pay business taxes at the owner’s personal income tax level, corporate tax reform does nothing for most small businesses. In fact, by only addressing the corporate side of things, small businesses could see a tax rate higher than their corporate competitors while at the same time no longer being able to utilize certain deductions that could be eliminated as a corporate tax loophole. The result: small businesses would get an effective tax rate higher than what they have now while corporations would likely have a lower tax rate.
Please click here to read NSBA’s detailed comments on tax reform.