Corporate Tax

Small companies can be badly affected by the corporate tax hike

Congress is considering raising the corporate tax rate from 21 percent to 28 percent. Many assume that only large companies will pay this higher rate. That couldn’t be further from the truth. In fact, with over a million small businesses – the mom and pop traders, small manufacturers, and professional service companies that have often suffered the worst during the pandemic – tax burdens would also increase significantly. This, in turn, would have a negative impact on small business investment and growth plans and, more importantly, job creation and employment.

There are 1.4 million small businesses (with 500 employees or less) officially organized as C-Corporations, which means they would pay that higher rate. These small businesses employ nearly 13 million American workers in a variety of sectors.

1.4 million small businesses that employ nearly 13 million Americans would pay the higher tax rate

The hardest hit would be the types of skilled jobs that politicians love to praise but often do too little in practice to support them. The Small Business C-Corps employs the largest number of workers in the group (1.8 million workers). Next up are professional, scientific and technical services (1.3 million employees), followed by retail (1.2 million employees).

Most C-Corps are small businesses and many are very small: over 84% of C-Corps have fewer than 20 employees. Small business owner Michael Canty is president of Alloy Precision Technologies in Ohio, a manufacturing company that employs approximately 85 people and is structured as a C-Corp under federal tax law. His business would be hit hard by the proposed increase under Biden’s tax plan. Canty warned that the proposed tax hike would make companies like his less competitive in the global marketplace.

“We have already started a hiring freeze. We need to prepare between the tax hike and the difficult regulatory environment,” said Canty.

In addition, small companies organized as C-Corps are spread across all industries. Retail (179,000) has the most stores. It is followed by professional, scientific and technical service companies (175,000); Real estate, rental and leasing (148,000); and construction companies (140,000).

This is how C corporations are broken down into small businesses:

With the Law on Tax Cuts and Employment of 2017, the company rate was reduced from 35 percent to the current 21 percent. This helped fuel the growth and investment of these 1.4 million small businesses that make up the C Corporation. This enabled them to grow at the right time and save and survive the storm when the pandemic broke out.

Many of these small businesses are just getting back to normal: According to the latest MetLife Small Business Index and the U.S. Chamber of Commerce, 59% of small businesses believe it will take more than six months to get back to normal. Sudden – and substantial – tax hikes are a surefire way to halt the momentum of the recovery.

This would be the highest corporate tax rate in the industrialized world and would place US companies (large AND small) at a serious competitive disadvantage over other technologically advanced and savvy counterparts around the world. Higher rates for more than a million small businesses would stifle wage growth and job creation for American workers at a time when we can all agree on the need to strengthen the middle class and create more jobs here in higher-paying jobs At home.

The strong economic growth and sharp wage increases for the lowest-income workers prior to the pandemic were evidence that the lower tax rate was working as intended. Small businesses made a major contribution to this growth. A rise in the corporate tax rate would undo the progress made and jeopardize the strong foundations of this recovery. Let’s keep corporate tax rates where they are so America’s small businesses can continue to thrive and create the growth and jobs this country needs to sustain this recovery.

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