Tax reform probably isn’t going anywhere this year, but if that train does leave the station, there’s now a better chance that small businesses won’t get left behind.
That’s because the RATE Coalition, a group that represents 32 large corporations, has joined forces with the Coalition for Fair Effective Tax Rates, which primarily represents small businesses and large retailers, to push for comprehensive tax reform. Both groups agree that reforming corporate taxes isn’t enough — the individual income tax code also must be made fairer and simpler.
That’s important for small businesses, because most of them don’t pay corporate taxes — instead, their profits pass through to their individual owners for tax purposes. If Congress only reformed corporate taxes — as has been suggested by President Barack Obama — these pass-through entities could lose some business deductions without benefiting from lower corporate tax rates. This would leave them with a higher tax bill.
At a joint news conference Thursday on Capitol Hill, leader of the two coalitions said they hope to improve the chances for comprehensive tax reform — corporate and individual — by working together.
“What unites us is a commitment to reforming this code,” said James Pinkerton, co-chair of the Reforming America’s Taxes Equitably Coalition and a former policy adviser to presidents Ronald Reagan and George H.W. Bush.
“A more competitive, modern tax system will attract much-needed jobs back to the United States and better enable American businesses to compete in the global marketplace,” he said. “The tax code is riddled with exemptions that reward some businesses and penalize others. It should help businesses grow without benefiting certain business activities over others.”
The fact that the RATE Coalition has joined the Coalition for Fair Effective Tax Rates in calling for tax reform that will apply to all businesses, not just C corporations, is a “real positive signal” to Congress, said Bill Hughes, senior vice president of the Retail Industry Leaders Association.
“We’re hoping to provide more momentum” for tax reform, he said.
Rep. Dave Camp, the Michigan Republican who chairs the House Ways and Means Committee, has been working with Sen. Max Baucus, the Montana Democrat who chairs the Senate Finance Committee, to push bipartisan tax reform legislation. Camp issued a statement thanking the two coalitions for their support.
“Today’s call to action by these two coalitions underscores what job creators across the country have long said: Our broken tax code ought to be simpler and fairer so that we will have a stronger economy where there is more investment, greater job creation and higher wages,” Camp said.
“It is an economic issue,” said Dan Danner, president of the National Federation of Independent Business and co-chair of the Coalition for Fair Effective Tax Rates.
That’s why he thinks tax reform has a chance of being enacted, despite the bitter partisan battle over government spending and health care reform now consuming Congress.
“The relationship that matters at this point is the Camp-Baucus relationship,” said Elaine Kamarck, the RATE Coalition’s other co-chair and a former White House adviser to President Bill Clinton.
That bipartisan relationship appears to be quite good.
“I’ve never seen anything quite like it,” Pinkerton said.
The next big step is for Camp and Baucus to reveal specifics of their tax reform plans — what tax breaks would be eliminated and how much tax rates would be reduced.
That’s where the business community’s united front on tax reform will be tested, because lots of industries are bound to lose tax breaks that are important to them.