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Small Businesses Pay Double Taxes than Corporations: Study

August 15, 2013

A study by the National Federation of Independent Businesses and the S Corporation Association found that most small businesses pay more than double in taxes than larger corporations. S corporations and partnerships have to carry the burden of paying higher taxes because they pay at the individual rate, which removes them from taking the benefit of tax breaks enjoyed by larger corporations.

Large corporations are under criticism for using tactics to evade taxes in the U.S. They use legal methods to reduce their tax liability by utilizing tax havens to stack unaccounted money or shift profits to low-tax countries. Some companies, including General Electric, have been reported to pay negative taxes because of subsidies and other tax benefits. S corporations and partnerships, on the other hand, pay 31.6 percent or 29.4 percent respectively.

President Obama’s proposal to reform the corporate tax code has been criticized by small businesses, as they find that their tax burden will remain unaffected while larger corporations will enjoy a reduced rate. For fairer reform, the Obama administration should consider small businesses that file their returns at the individual rate.

Multi-national corporations, such as Apple Inc, have legally evaded taxes and justify it by quoting the high corporate tax rate. Even when corporate tax reforms are talked about, most small businesses are ignored. Although the scale in which small businesses operate is less than large corporations, they provide employment and generate revenue.

At a time when corporate tax reforms are pressing, the Obama administration will need to address the problems of small businesses. The tax code needs to be simplified and made fairer for both large and small businesses so that they all can assist with the growth of the economy.

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