Entrepreneurs badly need reform, argues one nonpartisan group, but new legislation will be hard to pass.
Republicans are planning to introduce tax reform legislation in the first quarter of 2014, Representative Paul Ryan (R-Wis.) said on NBC's "Meet The Press" on Sunday.
Ryan said he would advance reform in the House Ways and Means Committee, but he and Senator Patty Murray (D-Wash.) admitted on the show that solidifying a bipartisan agreement while President Obama is in office would be unlikely.
For small business, passing tax reform would be welcome. The Tax Foundation, a nonpartisan tax research group based in Washington, D.C., recently wrote that the current U.S. tax code is "a burdensome mess that severely stifles economic growth." The organization says tax reform is needed because the U.S. has "the highest corporate tax rate in the developed world, high taxes on investment, and heavy restrictions on the flow of capital, all of which damage investment in the United States, and jobs and wages with it."
Under the current U.S. tax code, most small businesses are "pass-through entities," for which business income passes through the company and is reported on the owner's individual income tax return. The Tax Foundation says that because business owners pay income tax on their individual returns, they can pay a rate of up to 39.6 percent.
Small businesses that earn more than $1 million can face top marginal tax rates near 50 percent. If a tax reform legislation does surface, writes The Tax Foundation, small businesses should be treated the same as big corporations--many of which are looking for a 25 percent or lower tax rate.
With a large portion of all U.S. business taxes coming from pass-through entities, The Tax Foundation pleads: "For the sake of economic growth, tax reform should remember small businesses."
What do you think about tax reform? What is the maximum tax rate you believe would help your business reinvest, create more jobs, and help the economy? Let us know in the comments below.
WILL YAKOWICZ is a reporter at Inc. magazine. He has covered business, crime, and politics at Patch.com, and his work has been published in Tablet Magazine and The Brooklyn Paper. He lives in Brooklyn, New York. @WillYakowicz