Small, big business at odds on 'cliff' fixes

Tax rate issue differs for small owners vs. corporations

McClatchy NewspapersDecember 4, 2012 

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WASHINGTON, DC - NOVEMBER 28: (L-R) Archer Daniels Midland President and CEO Patricia Woertz, Merck President and CEO Ken Frazier and Caterpillar Chairman and CEO Douglas Oberhelman arrive at the White House for a meeting with President Barack Obama and other business leaders November 28, 2012 in Washington, DC. According to the White House, the American business executives met with Obama to discuss economic growth and deficit reduction. (Photo by Chip Somodevilla/Getty Images)

CHIP SOMODEVILLA — Getty

— Democrats and Republicans aren’t the only ones divided over how to fix the nation’s fiscal problems. Big business and small business have very different views on whether changes to personal income taxes or corporate taxes should be part of the fix.

Groups that represent American businesses are in a bind. Some of their members declare their business income through their personal income taxes, and they are staring at the possibility of higher tax rates on the top tiers of personal income. Yet big corporations would be unaffected by such higher tax rates, since they pay corporate income taxes, not personal. They’re rooting for a lowering of the corporate tax rate.

Simply put, what’s good for some businesses is not necessarily good for others.

“There is no difference, really. They want the same thing – lower rates, certainty, simplification and sound transition rules,” insisted Bruce Josten, vice president and top lobbyist of the U.S. Chamber of Commerce.

The National Association of Manufacturers takes a similar public tack, preferring for now to avoid talk of competing visions among its members.

“It’s hard to talk about a hypothetical,” said Dorothy Coleman, vice president of tax policy for the association. “Right now we are very much focused on going to the Hill and spreading our members’ concerns.”

Manufacturers want Congress to avoid the “fiscal cliff” of expiring tax measures and pending spending cuts, which if left unchanged this month could send the economy skidding downward.

“We’re going to lose jobs, we’re going to probably go into a double-dip recession, and it’s going to set us back about 10 years,” Coleman warned.

The most immediate threat for many businesses is allowing the Bush-era tax cuts on personal income to expire at the end of December. President Barack Obama wants to extend them for everyone except the top 2 percent of earners. That might be good for middle-class Americans, but it could hurt many of the roughly 4.5 million business owners who are “S corporations,” and declare their business earnings as personal income on their 1040 tax forms.

In a Nov. 27 letter to congressional leaders from both parties that spells out the competing interests, 42 trade associations whose members mostly declare their business earnings through their personal taxes pleaded for lawmakers to avoid pitting them against corporate interests.

“There is no economic or political justification for reform that lowers marginal tax rates on corporations while raising either marginal or effective tax rates on the 95 percent of businesses structured as pass-through entities,” said the trade associations, whose members range from grocers to truckers to general contractors.

For big corporations whose shares are traded on the New York Stock Exchange – and who donate heartily to political campaigns – there’s ambivalence about the tax plight of smaller firms. They’re rooting for a deal that averts the fiscal cliff with a temporary measure that promises a comprehensive overhaul of the tax code next year.

Still, in that event, corporations hope to knock down the current corporate tax rate, higher than in most developed nations, to a rate somewhere around 25 percent or 28 percent. In theory, they’d agree to give up myriad tax loopholes, but already many are scrambling to try to lock in their existing preferential breaks.

Big banks that underwrite mortgages fear a deal that caps or ends the tax deductions homeowners have enjoyed on mortgage interest.

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