According to a recent National Small Business Association survey, 97% of small business owners participated in the political process in 2012. In addition about 66% of small business owners donated to political candidates last election cycle. The support small businesses grant to political parties should allow for some legislative influence, but, that may not be the case. The major issue holding back effective tax reform for small businesses is that most operate as “pass through”. This means that owners allow income to pass through “he business and be treated as individual income. In so doing, they avoid incorporation to receive liability protections. Thus, the latest proposals to cut the corporate rate to 20 percent would do little for small business.”
To date, small businesses are the effect losers of the tax code despite their donations. With the complexities of regulations and depreciation schedules, a lot of businesses end up “paying double the tax rate of larger corporations.” In the case of self-employment “small businesses are not able to deduct health-care costs like corporations. Already, they spend a disproportionate amount on filing their taxes, only to discover that bigger companies pay a much lower effective rate (on average 13 percent).”
Despite President Trump’s constant plea to simplify the tax code, a simplification while good for larger corporations, may solve next to nothing for smaller entities. As a group the leans conservative in most cases, a new focus on this dedicated group by either Republicans or Democrats could create a new generation of loyal followers. Only time will tell if the new tax reform will benefit smaller firms moving forward, but for now, it looks like small businesses will continue to struggle with taxes.