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A Modest Tax Day Proposal: Help Small Business by Closing Corporate Loopholes

This post from Small Business Majority's founder & CEO, John Arensmeyer, originally appeared on The Huffington Post

Everyone knows that reforming America’s tax system is among the tougher tasks lawmakers consider every year, which is why our tax code has undergone few significant changes over the last two decades. This slow pace of progress, however, is deeply harmful to small businesses that are consistently held back by tax rules that favor large corporations while hindering small firms. On this Tax Day, I offer politicians a common-sense proposal that would correct this problem: eliminate wasteful corporate loopholes while lowering corporate tax rates in a manner that ensures a net revenue increase to bring down our deficit and fund key programs.

There is a lot of talk these days on Capitol Hill about tax reform, and it seems taxes could be the next policy area primed for a major restructuring attempt. All of this discussion, however, has produced little in the way of substantive proposals that would help small businesses. In fact, there is no indication of any serious push by politicians to end some of the wasteful tax loopholes that are putting small businesses at a disadvantage.

Something needs to be done to end large corporations’ use of a tax loophole known as an inversion, which allows big businesses to relocate their base overseas for tax reasons. This practice, which is estimated to have cost the U.S. Treasury $111 billion in 2012 alone, leaves consumers and small businesses to pick up the slack when it comes to bolstering the nation’s tax base, and gives big companies an unfair advantage over small business owners who must pay full freight because corporations can then use the savings to undercut them on costs.

Inversions allow corporations to purchase a company in a tax-friendly nation in order to relocate their headquarters to save money on taxes. For all intents and purposes, however, the company remains a U.S. company and continues business as usual — all while enjoying a lower tax rate. Small businesses and others are then left to make up for this lost revenue.

When large corporations don’t pay their fair share, it hurts small businesses, our economy, our ability to invest in our national infrastructure and so much more. It gives those benefitting significantly from everything the American economy has to offer the ability to duck their responsibility to contribute to it.

Small business owners are tired of doing their part while big corporations use unfair loopholes to dodge their obligation to the nation that helped make them successful. In fact, Small Business Majority polled a random sample of entrepreneurs across the country and found 9 in 10 owners say the practice of U.S. multinational corporations using accounting loopholes to shift their U.S. profits to offshore subsidiaries to avoid taxes is a problem, and they support eliminating these tax breaks and providing incentives to bring production home.

What’s more, 75 percent say their small business in particular is harmed when big corporations use loopholes to avoid taxes, and a sweeping 90 percent believe corporations use loopholes to avoid taxes that small businesses have to pay.

Politicians on both sides of the aisle have agreed we need to address this issue, but they have yet to move forward on legislation that would actually eliminate (or even reduce) the practice of inversions and other harmful loopholes. And while it’s clear lawmakers want to accomplish some sort of tax reform this year, virtually nothing has been said about changes that would actually help level the playing field for small businesses.

It is long past time for lawmakers to move forward with a plan to close unfair tax loopholes. Why not use Tax Day as an opportunity to begin working toward real change to America’s tax system in a way that doesn’t just favor the wealthiest corporations while leaving small firms to pick up the slack?

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