September 8 marks the centennial of the estate tax, which establishes a tax on certain estates that are transferred as inheritance. To mark the occasion, we’ll likely see many pundits calling for the abolition of this tax and knocking its impact on small businesses. But the reality is that the estate tax, which only applies to estates valued above $5.4 million, impacts very few small businesses. Instead of worrying about a tax that affects only the very wealthy, we should take this time to focus on the real tax issues that hurt small businesses – like inversions and other loopholes that favor larger corporations at the expense of Main Street.
Small businesses, by definition, tend to have fewer resources than big businesses. Small businesses rarely possess huge amounts of land or other assets that would be subject to the estate tax when passed to future generations. As a result, an estimated 120 farms and small business – out of the 28 million small businesses in America – had to pay the estate tax in 2013.
When it comes to tax policies that hurt our small businesses, the real culprits are big corporations that are allowed to avoid paying their fair share of taxes through loopholes like offshore tax havens. For instance, U.S. corporations use offshore tax havens to avoid an estimated $90 billion in federal income taxes each year. Through various accounting tricks like offshore tax havens, 26 profitable Fortune 500 firms were able to pay no federal income taxes from 2008-2012.
While big businesses avoid paying their fair share of taxes, they’re more than happy to continue using public resources – like roads and first responders – on which we all depend. That means that small businesses and consumers are left picking up the tab for our nation’s spending. The financial repercussions are significant – in total, offshore tax havens alone cost the average small business $3,244 per year. That amount is particularly significant considering the limited resources of most small firms.
With these impacts in mind, it’s no surprise Small Business Majority’s scientific opinion polling found significant opposition to tax loopholes among small business owners. Small Business Majority’s polling of a random sample of entrepreneurs across the country found 75 percent believe their small business is harmed when big corporations use loopholes to avoid taxes, and 90 percent believe big corporations use loopholes to avoid taxes that small businesses have to pay. What’s more, the polling found nine in 10 owners say the practice of U.S. multinational corporations using accounting loopholes to shift their U.S. profits to offshore subsidiaries to avoid taxes is a problem, and they support eliminating these tax breaks and providing incentives to bring production home.
Recently, the U.S. Department of the Treasury tackled this issue by issuing rules to limit corporate tax inversions, which allow corporations to purchase a company in a tax-friendly nation in order to relocate their headquarters to save money on taxes. These rules are a great start – but we need to do more.
It may be the 100th anniversary of the estate tax, but for most small business owners this date, and the ongoing debates regarding repeal of this tax, couldn’t matter less. The real issue when it comes to taxes is the inequity between small businesses and big businesses. It’s time for big businesses to start paying their fair share, because small businesses can’t afford to continue picking up the tab.