The Associated Press is looking at the positions that President Barack Obama and Republican presidential candidate Mitt Romney have taken on small business issues.
BACKGROUND: Many small business advocates say the current tax structure favors so-called C corporations, such as General Motors Co., Microsoft Corp. and other large companies, which are taxed at the corporate rate on the money they earn. But most small companies aren't taxed directly. Under federal tax law, their income is "passed through" to their owners, who report it on their personal 1040 tax returns. That results in many sole proprietors, partners and owners of so-called S corporations paying higher taxes on their business earnings because individual tax rates are higher than corporate rates. Under the Obama Administration's proposed budget, the corporate tax rate would drop to 28 percent from its current 35 percent; manufacturers would pay 25 percent. But households making more than $250,000 a year would face a tax rate of as much as 39.6 percent — and many small business owners and their spouses have income above that level. Romney is proposing a 25 percent corporate tax rate and a top individual rate of 28 percent.
Here's what the Obama and Romney campaign staffs have to say about where the candidates stand on taxes:
THE QUESTION: You are proposing to cut the corporate tax rate. How would you create parity for sole proprietors, partners and S corporation owners who are often subject to higher tax rates because they report income on their personal tax returns?
ROMNEY'S POSITION: "As president, Gov. Romney will make a permanent, across-the-board 20 percent cut in marginal rates. This will bring the top individual rate down from 35 to 28 percent. With 54 percent of private sector workers employed outside of corporations, individual rates define the incentives for job-creating businesses. This bold stroke reduces the tax on the next dollar of income earned for all individual taxpayers - especially small businesses."
FACT CHECK ROMNEY: C corporations would still get a more favorable tax rate under Romney's plan than many small business owners— 25 percent vs. 28 percent.
OBAMA'S POSITION: "The President has put forward a framework for corporate tax reform that is specifically designed to simplify and cut taxes for America's small business; he cut taxes for small businesses 18 times since he took office. Indeed, the President's plan for corporate tax reform ensures that small businesses, including small pass-throughs, receive a net tax cut. As part of this plan, the President proposes allowing small business to expense up to $1 million in investments, and allowing cash accounting on businesses with up to $10 million in gross receipts. In the Budget, the President proposed providing tax cuts for small businesses that increase their hiring or make new investments, doubling the deduction for startup costs, and reforming and expanding the health insurance tax credit for small businesses."
FACT CHECK OBAMA: While the campaign says Obama "cut taxes for small businesses 18 times," some of the cuts were temporary. One was a $500,000 limit on deductions for equipment purchases; the maximum deduction was lowered to $125,000 this year. His latest proposal does provide for an increase in that deduction, to $1 million. But under the plan, C corporations would still get a more favorable tax rate than many small businesses.
The National Small Business Association, a group that lobbies for small businesses on federal issues, says Romney's proposed cut in marginal tax rates "will, in fact, help a number of small businesses, the overwhelming majority of which (83 percent) are structured as pass-through entities." But the NSBA also noted that Romney's plans could result in some pass-through business owners paying a higher rate than corporations. Looking at Obama's proposal, the NSBA repeated its position that "corporate tax reform cannot be passed without some kind of individual tax reform." It noted positive points such as: the increase in the deduction for equipment purchases; the doubling of the $5,000 deduction for startup costs and a provision allowing cash accounting for some businesses. But it said that the President's proposal "fails to ensure parity between small and large business, which would only exacerbate the competitive disadvantages small businesses face."
"Both candidates are emphasizing the importance of entrepreneurs because startups are critical to the recovery and long-run health of the US economy," said Robert Litan, an economist who studies entrepreneurship and public policy at the Brookings Institution and the Ewing Marion Kauffman Foundation. "It is difficult to compare the net impact of each plan because they differ in so many respects. Also, given where taxes are - far below prohibitive levels - it is not clear how much of a differential impact the changes offered by either candidate would be on new business formation and growth, except to say that, on balance, each plan would help."