Two key pass-through structures favored by small businesses pay a significantly higher effective tax rate than large corporations, according to an Aug. 7 study released by National Federation of Independent Business and the S Corporation Association, of which ABC is a coalition member.  Analysis by Quantria Strategies shows that S corps will pay the highest effective tax rate in 2013 at 31.6 percent, compared to 29.4 percent for partnerships, 17.8 percent for C-corporations and 15.1 percent for sole proprietorships.  Effective tax rates are the percentage of income businesses pay in taxes.

To address this issue, ABC July 23 became a founding member of the Coalition for Fair Effective Tax Rates, which supports using effective tax rates as the clearest way to judge the impact of tax reform on businesses. Eighty percent of the construction industry is comprised of pass-through entities, along with the majority of the broader private-sector workforce. 

In addition, the study comes on the heels of a White House proposal unveiled July 30 by President Barack Obama in Chattanooga, Tenn., that includes the same corporate tax cuts proposed last year paired with new stimulus spending for infrastructure and manufacturing paid for with one-time tax revenue, but no meaningful reform for S corps.

 “Corporate-only rate reduction does not amount to business tax reform,” said ABC Vice President of Federal Affairs Geoff Burr. “The president’s plan not only widens the existing gap between Main Street and the Fortune 500, but would actually mean billions of dollars in increased taxes for construction contractors.”

Sen. Max Baucus (D-Mon.) and Rep. Dave Camp (R-Mich.), leaders of the respective congressional tax-writing committees, have jointly committed to pursue a comprehensive tax overhaul that is much broader than the White House proposal.  

Baucus in particular has proposed a “blank slate” process that would remove all existing tax credits and deductions to lower tax rates, while putting the burden on individual senators to defend and restore their favored preferences. 

In response, ABC is determining the specific tax provisions ABC members want to defend or trade for lower rates. The results of this brief survey will reflect the values and priorities of ABC’s membership with respect to tax reform and allow us to advocate accordingly. ABC encourages all members to respond.