A plea for tax fairness from small businesses

  • Article by: JIM SPENCER , Star Tribune
  • Updated: December 23, 2012 - 6:44 PM

626 owners sign appeal to remember their importance during fiscal cliff negotiations.

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Kathy Lauwagie

Photo: Marlin Levison, Star Tribune

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WASHINGTON - The plea arrived from the hinterlands as a letter with 626 signatures of small-business executives, owners and operators, including 16 from Minnesota.

A coalition of small businesses assembled by three trade groups -- the American Sustainable Business Council, Business for Shared Prosperity and the Main Street Alliance -- begged the president and Congress to "make big corporations pay a larger share of taxes" as part of any "grand bargain" to deal with the nation's fiscal cliff and financial deficit.

The letter specifically urged Congress to stop rewarding big companies "for shifting jobs and investment overseas or disguising U.S. profits as foreign profits" to avoid paying taxes on them. The letter also stressed the need to make sure corporate tax reform produces more federal revenue than current laws.

"When powerful, large U.S. corporations avoid their fair share of taxes, they undermine U.S. competitiveness, contribute to the national debt and shift more of the tax burden to domestic businesses, especially small businesses that create most of the new jobs," the letter stated.

The deficit negotiations have given millions of small businesses a single rallying point that they once lacked, said Russell Price, a senior economist at Minnesota-based Ameriprise Financial.

And, collectively, they have a strong case. "The longevity and strength of the U.S. economy is based on small business and entrepreneurship" in contrast with other big international players such as Germany, France and China, Price said.

"Big business has the lobbying money; they get what they want," said Kathy Lauwagie, who once ran an accounting firm specializing in small businesses out of her home in Maplewood.

Lauwagie now sells natural pest control products online. For her, signing the higher-corporate-tax letter "was more of a symbolic gesture" than an expectation. But she believes an important, often overlooked point had to be made.

"Big business gets tax write-offs that are not available to small businesses," Lauwagie said. Small businesses lack the leverage to borrow investment capital that lenders routinely provide big companies, and small businesses "don't have the buying power or money for promotion."

Congress "most definitely" favors big business over small business, said Les Phillips, who ran a one-man technical writing and illustrating business in Minneapolis before retiring into part-time commercial photography and writing.

Phillips signed the letter urging higher corporate taxes "to at least nudge the conversation."

"I didn't expect someone to have a come-to-Jesus moment and start working for small business," he said. "That's not how the government works."

While the U.S. corporate tax rate -- 35 percent -- is the world's highest, myriad tax breaks cut that rate significantly -- sometimes more than half -- for many large companies.

Small-business people and some economic experts worry that corporate lobbying will keep the country's richest players from paying their fair share in deficit reduction and add to the financial burden of mom-and-pop shops.

"Small businesses are the traditional American engine of growth," said Hamline University law Prof. Ann Graham, once the head lawyer of the Dallas office of the Federal Deposit Insurance Corp. "They are more likely to hire people on a local level and develop new products."

In contrast, Graham said, cutting the corporate tax rate won't necessarily increase economic growth or job creation.

Still, some of those who signed the request for higher corporate taxes figured it was an exercise in futility.

The influence of a letter with 626 small-business signatures pales in comparison to corporate calls for action. The letter arrived at the White House and Capitol Hill a few days after House and Senate leaders received correspondence from 163 corporate CEOs who are members of the Business Roundtable.

That group's collective voice represented $7.3 trillion in annual revenues and more than 16 million employees. The CEOs called for increased individual tax rates if that's what it will take to avoid falling off the fiscal cliff. Meanwhile, plans are for corporate tax rates to go down, though much of the reduction could be offset by eliminating corporate tax deductions.

Lauwagie and Phillips both believe that should happen. But they fear what they consider business as usual, which means big businesses get what they want, while small businesses do not.

The individual tax rates Congress is thinking about raising will affect some small-business owners who pay their business taxes based on individual rates. As an accountant, Lauwagie worked for some of these people and concluded that lawmakers don't care about small business.

At the very least, members of Congress pay attention to corporate concerns, financial experts agree. "Money can buy you ear time," Ameriprise's Price pointed out.

But lowering corporate tax rates does not necessarily hurt small businesses, University of Minnesota economist Laura Kalambokidis argued. "I don't see the fiscal cliff and federal tax policy as a big business/small business trade-off," she said.

Graham thinks the shared suffering that attends deficit reduction should make sure tax breaks for businesses of all sizes bring commensurate returns to the overall economic recovery.

Jim Spencer • 202-383-6123

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