A recent poll conducted by the American Sustainable Business Council (ASBC) and Main Street Alliance (MSA) found some 85 percent of small business owners oppose a territorial tax system, which would permanently exempt offshore profits from U.S. taxation.
Supporters of a territorial tax system generally argue that the current global system puts U.S. firms at a competitive disadvantage since they are required to pay a higher U.S. tax rate on repatriated profits earned in low-tax countries, while multinationals based abroad pay only the local tax rate on these profits.
While this might hold true for Wall Street, it is a whole different story for Main Street. For smaller operations constrained to the U.S., overseas tax havens can make it harder to compete with large corporations.
“I’m not afraid as a small business to compete with the big boys,” said Henry Passapera, a member of the MSA and the co-owner of P&R Trading, a New Jersey-based international supplier of airline parts and equipment. “But when big corporations use offshore tax havens to avoid their tax responsibility, it puts small businesses like mine at a competitive disadvantage.”
“If you want to fly the American flag at your corporate headquarters, you ought to pay your fair share of taxes,” he added.
This is why nearly 80 percent of small business owners say they are in favor of closing overseas exemptions altogether, according to the ASBC-MSA poll. More than 60 percent also would like to see an end to deferral, a current tax code provision that allows corporations to indefinitely defer payment of U.S. taxes on profits made or shifted offshore.
By a margin of more than 2-to-1, small business owners claim they prefer to close corporate tax loopholes rather than cut government programs such as education, infrastructure or defense. A recent study by the U.S. Public Interest Group estimates that these loopholes amount to as much as $150 billion each year in lost government revenues.
Everyone who is anyone is doing it. Such publicly beloved companies as Apple, Google and Microsoft have kept billions of dollars worth of profits overseas to avoid paying U.S. taxes, which Bloomberg places at $1.9 trillion overall. Yes, with a “t.”
During the 2012 presidential election, the only thing Barack Obama and Mitt Romney seemed to agree on was that helping small businesses to thrive is the best way to grow the economy. And they were right – small businesses have created more than 65 percent of the net new jobs, according to data from the U.S. Small Business Administration.
Smaller businesses also benefit big business when they are acquired. Google has acquired more than 100 companies to sustain its growth and Cisco has purchased more than 140. As large corporations continue to downsize and outsource, many former employees become independent contractors or start their own businesses rather than look for new corporate gigs. In essence, small business is the broccoli that allows the baby economy to grow up big and strong.
Over the years, the president has promised to nurture small business, strengthen the middle class and get us out of this economic rut once and for all. Eliminating tax havens and corporate loopholes would be a major step in achieving all three.
Based in San Francisco, Mike Hower is an Associate Editor at Sustainable Brands and writes about companies and organizations engaged in sustainability strategy, clean technology and social entrepreneurship. As a natural politico, he has a soft spot for anything related to public policy and the intersection of business and government, which he also blogs about on SustySavvy.com. Contact him at firstname.lastname@example.org. You also can connect with him on LinkedIn or follow him on Twitter (@mikehower).