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What about small businesses?
Small businesses create a large effect in the US economy.
There are nearly six million small businesses (businesses with fewer than 20 employees) in the US, employing about 20 million people. These businesses account for over 89% of all US employers. As such, they are the backbone of our economy. The current tax system burdens small businesses unnecessarily with high taxes and compliance costs.
Tax regulations create the most difficulty for small businesses.
Small businesses spend on average of $74 per hour to comply with the federal tax code – the most expensive paperwork burden imposed on small businesses by the federal government. A recent survey of the membership of the National Federation of Independent Businesses found that 91% of businesses responded that they used a professional tax preparer; whereas a decade ago less than two-thirds of small businesses used professional tax preparers. Payroll taxes are so burdensome to small businesses that most hire payroll services to comply with all of the regulations, at a significant cost to the businesses. So it is not surprising that more small businesses identified taxes as the “single most important problem” they face. “Government regulation and red tape” followed in second place.
Most small businesses pay taxes via the individual income tax.
Although many small businesses are not subject to the corporate income tax, the individual income tax affects most businesses in the United States. That is because business earnings are often paid through the individual income tax when “passed through” to business owners. Business income from sole proprietorships and S corporations, for example, is all taxed at the owners’ individual income tax rates. According to NFIB research, over 75 percent of small businesses are organized as S-Corporations, LLCs, LLPs, or Sole Proprietorships, known as pass-through businesses because they pay tax on business income through the individual income tax. Lowering corporate income tax rates does nothing to help reduce the tax burden on these businesses. Research suggests that across the board tax cuts, regardless of income level, would increase entrepreneurial start-up and survival. The FairTax plan (which replaces federal individual and corporate income taxes, including self employment taxes and the alternative minimum tax, the payroll tax, and the estate and gift tax with a single rate, simple national retail sales tax on the retail sale of all goods and services) dramatically improves the economic environment for small businesses. It reduces compliance costs and tax burdens and improves bottom line profits.
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Read the White Paper to Learn More
The national FairTax website has many resources explaining the affect it will have on different parts of society and business. Click the link below to learn more about the impact on small businesses.