By Dominic M. Calabro, President & CEO Florida Taxwatch
Small businesses truly are this nation’s backbone. They account for 94 percent of all the country’s businesses and are owned by a diverse array of Americans from all backgrounds. The ability to build a small business is the cornerstone of the American dream.
Unfortunately, the United States has one of the most convoluted tax codes in the world, putting unnecessary strain on small business owners. Many small businesses are designated as “pass-through” businesses (think of S-corporations, LLCs, etc.) and since owners of pass-through businesses must file income from their business on their tax forms, they face a 39.6 percent tax rate under the individual income tax code. This is more than the corporate tax rate of 35 percent, which is one of the highest corporate tax rates in the world and first among countries in the Organization for Economic Cooperation and Development.
There is no reason why we should be making our small business owners pay a higher effective tax rate than large corporations like General Motors.
Florida is generally known for being a business-friendly state but small businesses still face hurdles. According to the Tax Foundation, small businesses in Florida have an effective tax rate of 42.6 percent, one of the lowest in the country, but they suffer under the nation’s only state-sanctioned sales tax on commercial leases. Known as the Business Rent Tax, it creates a government-mandated increase in occupancy costs of up to 7.5 percent. This puts smaller businesses at a disadvantage to bigger companies who have the resources to afford the additional tax.
In an effort to fix the tax problems small business owners face, Florida TaxWatch, the state’s premier government watchdog, has called for the reduction or elimination of the Business Rent Tax and has joined a coalition of business and tax reform groups in support of Rep. Vern Buchanan’s Main Street Fairness Act.
Buchanan’s proposal would even the playing field for small businesses burdened by the tax code. It would ensure that small businesses designated as pass-throughs would never face an effective tax rate higher than the corporate tax rate. The best part about Buchanan’s proposal is that it would boost economic growth and result in more long-term tax revenue.
The more we allow small businesses to succeed, the more jobs that will be available and the better off our country will be. It is time for policy makers to even the field for small businesses and ensure that our economy can flourish and prosper.