Among the many controversial topics being batted around this election season, one of the few with any opportunity for bi-partisan support is a reform of the corporate tax code.
While it is still an issue that generates strong opinions on either side of the aisle, most politicians and business executives realize that the current corporate tax structure is broken. Despite a corporate tax rate that tops out at 39 percent, the highest in the industrialized world, the U.S. actually has a fairly low “effective tax rate.” U.S.-based companies pay only about 10 percent tax because of numerous tax breaks and tax provisions, according to the Government Accountability Office.
Unfortunately for many small and mid-sized businesses, they often find themselves on the higher end of the tax spectrum, while their larger counterparts pay a much lower rate.
Having a corporate tax code that favors the international corporations with legions of tax strategists could be stunting the growth of small and mid-sized businesses because of the disproportionate way corporate taxes are levied. Small and mid-sized businesses that don’t have the international footprint to hold profits in overseas subsidiaries are at a disadvantage under the current corporate tax code.
A recent example of the favorable tax terms that multi-national U.S.-based companies negotiate came to light when the European Union ordered Apple to pay $14.5 billion in taxes. The ruling reverses a corporate tax rate that dropped as low as .005 percent in 2014 under an agreement the global technology company negotiated with Ireland. And it seems the ruling might erase any hope that money could be repatriated to the U.S. — a hope long held by politicians who argue for a more sensible tax rate and an incentive for repatriating offshore profits.
If politicians can agree on a set of corporate tax rules that levy a fair burden across both large, multi-national business based in the U.S. and small and mid-sized American businesses, it could unlock a new round of business investment and corporate growth as large companies repatriate profits and smaller companies pay a more equitable tax rate that allows for additional re-investment and growth.
Items like tax reform are enormously controversial and complicated policy issues. But if the U.S. has any hope of tapping into the estimated $2 trillion in corporate profits being held overseas and reducing the tax rate on small and mid-sized U.S. businesses, reforming the corporate tax code could be the policy change that solves these two problems at once. Small and mid-sized businesses deserve a tax code that puts them on a level playing field.
John Solari is the managing partner of J.A. Solari & Partners. He has 25 years of accounting experience and is also a member of the American Institute of Certified Public Accountants and the Nevada Society of Certified Public Accountants.