Tax Reform Details Matter to Main Street’s Bottom Line
By Karen Kerrigan,
Small Business and Entrepreneurship Council
America’s tax system has not been reformed for 28 years. The pro-growth foundation of the 1986 tax reform act has deteriorated beyond recognition. Fixing the broken tax system is something most Americans and almost every Member of Congress believe should be a priority for our nation. There are rays of hope on Capitol Hill, but tax reform must be done right if it is going to be fair and less burdensome for all Americans.
The Tax Reform Act of 1986, which lowered maximum tax rates for businesses and individuals, while reducing the number of exemptions and tax brackets, was one of Ronald Reagan’s most significant legislative accomplishments. The reform effort was two years in the making, accomplished even though there was partisan and intra-party bickering over details. Sadly, since then, the tax code has been ravaged. Tax rates have been raised and the system is onerous and complex.
A clear desire to fix the system exists. The proliferation of competing tax reform proposals – one from the Senate, one from the House, and one from the White House – is evidence of this fact. This progress is undoubtedly a step in the right direction. But it is vital to note that reform has to be rooted and tied closely to the underlying principles of neutrality and fairness that are vital to successful reform if it is to be successful or worthwhile.
Effective reform must prioritize changes that encourage investment – particularly for capital intensive industries. Good policy must also ensure uniformity – treating all taxpayers fairly and eschewing political gamesmanship or rhetoric. Troublingly, not all of the proposals adhere to these goals. The White House plan, for instance, includes punitive and targeted tax increases on U.S. oil and gas producers, overlooking the role small businesses play in driving growth in this industry.
Proponents of tax increases may think they are targeting “big oil,” but the actual impact of their plans harm thousands of small firms in the industry and the hard-working people they employ. Consider that 91 percent of employer firms in the oil and gas extraction businesses have less than 20 workers (2011 latest Census Bureau data), and 65 percent in the oil and gas pipeline and related structures construction industry have less than 20 employees. The energy business is very much about small business.
Expanded production by domestic oil and gas companies has been an economic bright spot during the downturn and weak recovery. The sector is investing and creating good paying jobs. Additionally, oil and gas companies poured billions into the economy with capital investments throughout the recession and present period — investment that totaled $56 billion in 2012 alone. These companies also pay corporate income tax at rates well above any industry represented in the S&P 500 — 37 percent compared to 29 percent for all other listed industries.
The tax reform draft unveiled by House Ways and Means Chairman Dave Camp (R-MI) is not faultless – no plan so ambitious or sweeping can be perfect. At the same time, however, his plan keeps the door wide open to positive discussion and action regarding comprehensive tax reform. Senate tax reform efforts to date have included some provisions that would heavily impact capital intensive sectors like manufacturing or energy, but they have done so in a manner that is uniform – not punitive.
Tax policy leaders – such as Chairman Camp and Oregon’s own Senator Ron Wyden, now Chairman of the Senate Finance Committee – must respect the importance of uniformity in tax policy, and must ensure that more burdens for small companies and family-owned enterprises in sectors like oil and gas do not emerge due to their proposals. These firms are driving innovation and job creation within the industry, which is creating a significant ripple effect for entrepreneurial opportunities in servicing the extraordinary growth.
In the end, our tax code needs to enable the growth and success of all U.S. businesses, and that includes the entrepreneurs and small firms that are driving job growth, efficiency and innovation in the energy sector.
Karen Kerrigan is president and CEO of the Small Business and Entrepreneurship Council.
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