Fiscal Cliff A Tale Of Two Tax Headaches: Small Business Vs Big Business

Fiscal cliff negotiations and the fight over individual tax increases have exposed a deep division in business tax policy. The controversy pits large and small U.S. companies against each other while reversing many expected distinctions between the political left and right. According to one tax activist, the struggle “will be larger than the tea party.”

At issue is President Barack Obama’s proposal to let temporary 2002-era individual income tax rates, popularly known as the “Bush tax cuts,” expire for households earning more than $250,000 a year. Although lower tax rates for high earners have been renewed several times, the president is determined to raise taxes in the lame-duck budget negotiations.

But while the president and Democrats depict the tax hike as being limited to high net-worth individuals, the higher individual rate could impact millions of small businesses.

According to a 2011 Ernst & Young study conducted for the S Corporation Association (SCA), about 26 million businesses in the United States are organized as “flow-through” entities—Subchapter S corporations, partnerships and sole proprietorships in which profits pass through to owners. These entities employ about 70 million people and, according to the SCA, account for the majority of business activity in the United States.

That’s a very different class of businesses from the large Subchapter C corporations who were represented in a recent White House meeting regarding the fiscal cliff. There, Obama met with the leaders of General Electric, Honeywell, IBM, Xerox, American Express, Wal-Mart, Procter & Gamble, Ford, PepsiCo and Chevron.

Read More at humanevents.com . By Tim Cavanaugh.