Small Business Doesn’t Want GOP ‘Pro-Business’ Policy

With all the drama surrounding the shutdown and debt ceiling, it’s been a while since we’ve heard about the desperate need to promote our nation’s small businesses. (You know… the real  job creators and backbone of this great economy.) But rest assured that as budget negotiations ramp up you’ll be hearing plenty about the need to reduce their tax burden and relieve them of cumbersome regulation. Yes, when pushing what they call “pro-business” policies, the only businesses the GOP ever seems to mention are small.

Funny thing, though: the overwhelming majority of small business owners don’t support Republicans’ pro-business policies.

• More than four out of five small business owners (85%) oppose a territorial tax system, which would permanently exempt offshore profits from U.S. taxation. Across party affiliation, 67% or more are strongly opposed to the proposal.

• 76% of small business owners support closing overseas tax loopholes by implementing a unitary combined reporting system, which would limit the ability of corporations to avoid taxes by shifting profits offshore. A majority (55%) are strongly supportive.

• 64% support ending deferral, a provision of current tax code that allows corporations to indefinitely defer payment of U.S. taxes on profits made or shifted offshore. Across parties at least 62% support this idea.

• By a margin of more than two to one, small business owners prefer to close corporate tax loopholes rather than cut government programs.Both Democratic and Republican small business owners preferred closing loopholes to cutting spending on education, infrastructure or defense.

• Respondents in the survey were politically diverse, with a strong plurality of Republicans or Independents who lean Republican: 47% identified as Republican or Independent-leaning Republican; 27% as Democratic or Independent-leaning Democratic; and 26% as Independent or other.

This is important for both political and policy reasons. As Republicans head into budget talks ready to push tax ‘reform’, giveaways to corporations to repatriate off-shore holdings is sure to come up.  The fact that U.S. corporations hold at least $1.9 trillion in cash off-shore to avoid taxes is a real concern; one that makes it much more difficult to balance our budget and which continues to shift the tax burden to U.S. households. We can expect to hear a lot of talk about repatriation tax holidays (amnesty, to you and me) and territorial tax systems. (This is not to say that there aren’t corporate Democrats lined up to sign off on this; there are.)

Too bad that a tax holiday would achieve none of our purported goals. It would, in fact, increase deficits, fail to boost the economy, and ultimately shift more investment and jobs overseas. A territorial tax system, which would only tax companies on income earned in the United States, is also widely supported by the right who somewhat unbelievably argue that this would encourage companies to invest here at home. (Your guess is as good as mine.) Analysis shows, however, that this would essentially amount to a permanent tax holiday, doing nothing to decrease deficits or create jobs. It would actually cost jobs and depress wages in the United States.

No wonder small business is not a fan. Also note that small business does not support cuts to government programs, or to spending on education, infrastructure or defense. So the question becomes why Republicans, who talk a big game about the sanctity of American small business, are so enamored of policies unsupported by small business? You probably don’t need me to tell you that Americans feel a lot more warm and fuzzy about ‘Mom & Pop’ than they do about ‘Massive Profit-Driven Multi-National Corporation’. So it’s really just so much political smooth-talking.

The small businesses Republicans are actually concerned with are what we call “pass-through” structures. These are partnerships and S-corporations that corporate entities use to avoid paying taxes, regardless of how many employees they have. They account for just three percent of ‘small businesses’, and yet take in fully half of all ‘small business’ income in the United States. It’s quite a racket:

But major corporations, too, have figured out how to shelter their profits in these havens. In 2007, for example, 339 manufacturing corporations that each pulled in an average of $429 million filed as “small business” S corps…and paid zero corporate taxes. (By contrast, the 4,375 manufacturers that filed as actual corporations made a just over a tenth of that amount, and paid an average of about a million in corporate taxes.)

So maybe when we get to the table to talk tax reform we can address some of the actual holes in the system? Plugging up this loophole alone would pay for an awful lot of pre-k education, veterans’ benefits, bridges… But is this even on the table? Last time I looked they were talking about taking away your mortgage deduction.

By: Sandi Behrns

Sandi Behrns is a noted policy nerd, new media & web developer, and consultant to progressive organizations and campaigns. She is a senior contributor to Liberaland, and the Executive Editor of Progressive Congress News.