03.18.2024 0

There should be no corporate tax for small businesses that employ only American citizens or legal residents


By Rick Manning

There is an axiom of tax policy which states, “raise taxes on what you want to limit and cut taxes on what you want to encourage,” which synopsizes why some expenditures are allowed to be deducted, others get you credits, but most you just pay whatever the government decides.

We have wind tax credits, child tax credits and deductions on everything from home interest to the state taxes you pay. 

These decisions are largely driven by interest groups lobbying for different outcomes, all with promises to make the system either fairer, or less immoral.

Corporate taxes are much the same with battles over the corporate tax rates and a bevy of different carve outs designed to reward certain behavior or business activity.

Presumably, creating good paying American-based jobs will be a primary goal of President Trump’s, and with this in mind, here is a modest suggestion.

End the corporate tax altogether for small businesses that employ only American citizens or legal residents. 

You can leave the rest of the tax rate intact for the multinationals, whose representatives litter Washington, D.C. seeking ways to protect them from the onslaught of big government.  Since too often the major corporations see themselves as partners of government or political advocacy groups known as stakeholders who demand the expansion of government in every aspect of our lives.

Let them fend for themselves.  Most multi-nationals have long ago abandoned any pretense of supporting market based economics, instead adopting a Stockholm-syndrome-like love for using the regulatory state and the tax system as a cudgel against their competitors. 

Small and medium sized businesses are the backbone of the American economy, and they oftentimes find themselves at the mercy of whatever the big boys negotiate with little firepower in the backrooms of DC.

According to the U.S. Small Business Administration, small businesses alone employ 45.9 percent of the entire U.S. workforce, about 61.6 million. Incredibly over 80 percent of these small businesses don’t have any employees at all. Meaning that those small businesses which have employees, have a lot of them and are the engines of job creation in towns all across America.

Zeroing out the current 21 percent corporate tax rate would positively impact approximately 6 million small businesses with one or more employees, totaling about 34 million.  

If you want to encourage the continued growth of these small enterprises, cut their tax rate to zero.  The pay received by the owners would still get taxed as income.  If the owner sells the company, they would still have to pay capital gains tax and if the owner dies and transfers the company to heirs, they would pay inheritance taxes (although this should be ended.) 

To tax a small business owner is the equivalent of taking money out of investment, expansion, hiring new employees, and yes, even giving themselves a pay raise. 

Given that most small and mid-sized businesses only employ American citizens or legal residents, making this small change in tax law would put money directly into our economy so the market of millions of different decisions will be well-oiled to grow to meet the needs of the 21st century economy. 

America does not need any more targeted tax cuts or other top down decisions from law-makers which oftentimes only serve to enrich the lawyers and accountants who implement them.  What we need is for our tax system to encourage job growth in communities fueled by locally owned companies who see and are fulfilling a need. 

Congress can do whatever they want with the tax code on the multi-nationals, with their ESG and DEI policies which make their Ivy League executives feel good about themselves while playing squash. If Congress really want to unleash the power of America’s economy, taking the simple step of exempting every company that only employs American and legal resident workers from the corporate tax code would do just that.

Hopefully, in Donald Trump’s second time around in the White House, he will throw his weight behind this simple change and unleash a rebirth of the thriving American market-based economy – making America great again.

Rick Manning is the President of Americans for Limited Government.

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