S-CORP and thirty other trade associations sent a letter to the congressional tax-writing committee leaders today stating their opposition to the Administration’s reported corporate-only tax reform plan. States the letter:
As organizations representing millions of closely-held employers across the country, we are writing to express our strong opposition to any tax reform plan that will negatively impact 95 percent of America’s businesses.
Every day, nearly 70 million Americans wake up and go to work at a firm organized as something other than a C corporation. These “flow-through” businesses, structured as S corporations, partnerships, LLCs, or sole proprietorships, contribute more to our national income and our job base than all the publicly-traded corporations combined.
Despite this economic importance, the published reports indicate the Treasury Department intends to pursue a tax “reform” process that would benefit C corporations at the expense of flow-through businesses.
As we reported in previous Wires, the Administration’s reported corporate-only tax reform plan would not only eliminate tax expenditures that currently benefit flow-throughs, but also force those flow- throughs over $50 million in revenues into the C-corporation system. A blog post in today’s Wall Street Journal covering the business coalition letter and the pushback over the Treasury Department’s plan lays out the issue:
Companies organized as small businesses don’t pay corporate tax; instead, their owners pay tax on the earnings through their individual returns. The proliferation of these “flow-through” businesses has been a fundamental change in the U.S. business landscape in the last 25 years, and has led to worries among traditional taxable corporations that they eventually will be targeted to make up the lost tax revenue. Last week, some prominent lawmakers floated the idea of raising taxes on large flow-throughs as a possibility, and the Obama administration also appears to be giving it serious consideration as part of its plan for a corporate-tax revamp.
The business association letter, signed by the U.S. Chamber of Commerce, the National Federation of Independent Business, the National Association of Wholesaler-Distributors and Associated Builders & Contractors, Inc., among many others’ goes on to quote our recently-released Ernst & Young study quantifying the economic footprint of the flow-through sector for jobs and investment and the potential impact of tax reform, telling lawmakers,
According to recent estimates by Ernst & Young, this approach to tax reform could increase taxes on flow-through job creators of all sizes by at least $27 billion per year, making it more difficult for them to raise capital and hire new employees.
Moreover, reports suggest that the Treasury plan may force certain flow-through employers to pay taxes as C corporations despite the fact that the C corporation structure subjects U.S. firms to double taxation, thereby making them less competitive. As the Ernst & Young study makes clear, subjecting more firms to C corporation taxes ”raises the overall cost of capital in the economy, which reduces capital formation and, ultimately, living standards.” Recent testimony before the Ways & Means and Finance Committees has reinforced this point.
It is hard to see how a significant tax hike on a large segment of this country’s employers will improve the job market or make U.S. businesses more competitive.
The letter concludes by urging the tax-writing committees to “pursue reforms that recognize the economic value of all employers, regardless of how they are organized.”
Stay tuned for more developments, and a special thank-you goes out to the twenty-eight associations that joined with S-CORP in signing on to the letter.