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Fair Effective Tax Rates Could Reignite Small-Business Job Creation

Date: August 07, 2013

Dan Danner

Note to editors: You may use this column in full or excerpt any part of it to use in stories about small businesses and entrepreneurship.

American small-business owners are rightly proud of their reputation as the nation’s leading job creators. But their ability to create jobs is complicated by the federal tax code burden they face.

Today’s federal tax code is so complex and unfair that 91 percent of business owners surveyed recently by the National Federation of Independent Business said they have given up trying to wade through the IRS maze. They now turn to professionals to sort things out.

Angered and frustrated, Main Street proprietors have had it with a tax system loaded with inconsistent tax provisions and tweaked with endless changes that prevent them from planning future business steps while also increasing their compliance costs.

What’s more, they say it’s discriminatory and unjustifiable that the federal government has created a tax system that favors certain industries and types of businesses over others. That’s why NFIB and several other leading business organizations have forged an alliance to battle for reform that could result in tax rate equity.

The Coalition for Fair Effective Tax Rates is working to build broad support for meaningful reform, specifically a simpler and fairer tax code that will end the punishment of smaller businesses whose tax bills are often proportionately higher than companies many times their size.

Size matters in legislative circles. Larger businesses have more financial resources, tax experts and legal lever-pullers devoted to twisting the 73,954-page law to their benefit. Not so for most small firms that file as individuals and thus are unable to reap the benefits major industries enjoy, such as corporate carve-outs that drastically reduce the final, or effective, tax rate. According to the Small Business Administration, small businesses pay $1,584 per employee for tax compliance, and the cost of complying with the tax code is 67 percent higher for a small business as compared to the cost of compliance for a larger business.

That’s why 85 percent of small-firm owners say Congress should replace the tax code with a system that is fair for all and rational. More than three-fourths of those polled called for a code with fewer preferences in exchange for a lower rate, while seven-in-10 said any revisions made should lower the overall tax burden on Main Street.

For millions who own and operate the nation’s increasingly vulnerable small firms, what’s important is “what you pay at the end of the day.” They aren’t hoping for big-ticket tax breaks or special handouts.

Small-business-friendly tax reform should deliver fair effective rates that will fire up the Main Street job-creating machine and stoke the economy.

The time has come for tax fairness.

Dan Danner is the President and CEO of the National Federation of Independent Business, the nation’s largest and oldest small-business advocacy group.

Dan Danner

Dan Danner
President and CEO, NFIB

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