Tax Talk: A Tax Code to Help American Small Businesses Compete

American small businesses are engines of economic growth.

With around half of Americans either owning or working for a small business, these job creators pack a powerful punch and are responsible for creating roughly two out of every three net new jobs in the United States each year.  

They provide opportunities for a diverse group of owners, including women and minorities.

And, as the bipartisan leaders of the Senate Small Business Committee recently noted, “Today, 95 percent of businesses are considered sole proprietorships or pass-through entities, earning more than half of business income earned in the United States.”

These companies, while small, have been a boon to economic growth in America and that’s why current efforts to reform the tax code would help to ensure a level playing field for Main Street businesses.

After all, when compared to big businesses, American small businesses react to current tax laws in a far different way. Here’s a look at why:

A Different Tax Structure: 75 percent of small businesses are unincorporated, pass-through entities. This means the owner, whether they take home the profit or put it back into the business, reports business income on their personal taxes. Source: Small Business Tax Rates & Tax Complexity CribSheet, the National Federation of Independent Business (NFIB)

A Compliance Conundrum: Compared to large companies, tax compliance costs are a whopping 67 percent higher for small businesses in America. Small business owners spend between $18 and $19 billion per year on compliance costs. And the paperwork? It costs on average about $74 per hour. Source: Small Business Tax Rates & Tax Complexity CribSheet, the National Federation of Independent Business (NFIB)

Outsource of Paperwork: Small businesses typically do not have an in-house expert to manage tax filings. In fact, 89 percent rely on tax preparers outside their business. Source: Small Business Tax Rates & Tax Complexity CribSheet, the National Federation of Independent Business (NFIB)

Passing on Costs to Workers: 54 percent of the private sector workforce is employed by a pass-through entity. Even more, up to 25 percent of the workforce is employed by businesses that earn more than $250,000. This means that taxes aimed at hitting high-income brackets have a direct impact on not only job creators but, also, their workers and families. Source: Small Business Tax Rates & Tax Complexity CribSheet, the National Federation of Independent Business (NFIB)

Bottom Line: As Congress continues to work to advance an overhaul of America’s broken tax code, it is important to ensure that one of the nation’s greatest economic drivers – American small businesses – have access to more resources to help them grow, invest, and hire new workers. 

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