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Fast-Growing Companies Prefer Flat Tax

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July 15, 2005--Before they present in late September, President Bush's Advisory Panel on Tax Reform might want to take note: Nearly half the CEOs of the nation's fast-growing private companies favor a flat corporate tax rate over the existing tax structure, according to PricewaterhouseCoopers, which released its Trendsetter Barometer survey on Tuesday.

Of the 341 executives interviewed, 48% preferred a flat corporate rate over the current tax system for businesses like their own, compared to 16% who supported the current system. 13% preferred a value-added consumption tax and 23% indicated that they were uncertain which was better.

The complexity of the current system could be one reason owners prefer a flat tax, at least from the CEOs that Inc. interviewed separately. "The simpler the tax structure and the more visibility you give it, the better," said David Steinberg, founder and CEO of InPhonix, the No. 1 company on the Inc. 500 list in 2004. "The more complex a system, the more accountants you need to hire."

Echoing him was Robert Craven, CEO of Garden of Life, 46th on the 2004 Inc. 500. "Not having to pay tax attorneys and accountants may allow us to spend more on other things like R&D."

Steinberg acknowledged that certain aspects of the current system are beneficial to growing companies. "It is important for us as a technology company to be able to take write-offs," he said, citing as an example 'accelerated depreciation'-- an accounting method that allows the value of certain types of assets to be written off in advance, reducing a company's recorded income but thereby reducing their tax burden.

Businesses are often more concerned with tax credits such as this, agreed Alan E. Weiner, senior tax partner of Holtz Rubenstein Reminick LLP, an accounting firm with offices across the country. However, he is generally critical of a flat tax, pointing out that since "businesses are more concerned about the actual dollars they pay and not how many tax brackets there are, a corporate flat tax is not overly meaningful."

Moreover, he says, "people that advocate the flat tax are those who feel that everyone should be able to do their own income tax returns. Why? You might do some easy plumbing yourself, but if you need to get behind the walls, you hire a plumber. With taxes, a large segment of the population that has investments needs to go to see the plumber -- in this case, tax planners."

For personal tax returns, 58% of the owners prefer a flat tax with lower rates while eliminating tax breaks, 16% support the current system, 16% a value-added consumption tax and 10% were uncertain.

CEOs may have more than one reason to favor flat personal income taxes. "Depending on the level of the tax and how it's structured," said Craven, whose company sells high-end health products, "it could put more money into hands of the consumer."

Last updated: Jul 15, 2005




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