31 Million Job Creators At the Center of Tax Reform

By July 31, 2012Taxation

Up until now the main focus driving the discussion on the for tax reform has centered around the dubious distinction of America’s number top ranking as the nation with the world’s highest corporate tax rate – and for good reason, as that “distinction” is a significant hurdle in our bid to be continually competitive in a worldwide race for investment. However, every so often the topic turns to one of the biggest challenges for policymakers in the discussion of tax reform – flow-through or pass-through businesses, (ie. companies that are organized in a way that the tax burden flows through to the business owners’ individual tax returns). Tomorrow, the Senate Finance Committee will take this issue head on in a hearing appropriately entitled, “Tax Reform: Examining the Taxation of Business Entities”.

According to IRS data the number of flow-through businesses more than tripled from 1980 to 2008 totaling nearly 31 million today. How to treat these businesses in the context of tax reform is especially critical to manufacturers as nearly two-thirds of manufacturers are organized as a flow-through business. For these companies it’s essential that any tax reform plan include permanent lower individual marginal rates.

Most of the focus lately on the topic of individual marginal rates has centered on what to do with the soon expiring 2001 and 2003 rate cuts for the top two brackets. To the NAM there should be no debate here – all of the 2001 and 2003 tax relief should be extended for at least a year to provide time for Congress to finally turn to, and complete, comprehensive tax reform. The discussion about individual marginal rates is also particularly relevant for the NAM in the debate about tax reform because IRS data tells us that in 2008 the average net taxable income for these small and medium sized manufacturers (SMMs) is $384,000 so maintaining competitive marginal tax rates for all brackets is key if we want these SMMs to continue to compete and be successful.

While some may view this as a hefty sum – one which underscores the argument that those in the top brackets should face increased taxes so that they pay more of “their fair share”, it actually represents the opposite truth. In fact, raising taxes on these very business owners will reduce their ability to reinvest in their companies, to hire more, to expand or improve their products and to continue to survive in an ever changing and global marketplace.

The bottom line is that just as for their larger corporate counterparts, for SMMs the rate matters. As the Senate Finance Committee kicks off their hearing tomorrow we sure hope they are paying attention to the need take care of those 31 million job creators who will be closely monitoring the discussion.

Carolyn Lee

Carolyn Lee

Executive Director of The Manufacturing Institute at The Manufacturing Institute
Carolyn Lee is Executive Director of The Manufacturing Institute, the non-profit affiliate of the National Association of Manufacturers (NAM), the nation’s largest industrial trade association. Carolyn drives an agenda focused on improving the manufacturing industry through its three centers: the Center for the American Workforce, the Center for Manufacturing Research, and the Center for Best Practices.

In her role, Carolyn leads the Institute’s workforce efforts to close the skills gap and inspire all Americans to enter the U.S. manufacturing workforce, focusing on women, youth, and veterans. Carolyn steers the Institute’s initiatives and programs to educate the public on manufacturing careers, improve the quality of manufacturing education, engage, develop and retain key members of the workforce, and identify and document best practices. In addition, Carolyn drives the agenda for the Center for Manufacturing Research, which partners with leading consulting firms in the country. The Institute studies the critical issues facing manufacturing and then applies that research to develop and identify solutions that are implemented by companies, schools, governments, and organizations across the country.

Prior to joining the Institute, Carolyn was Senior Director of Tax Policy at the NAM beginning in 2011, where she was responsible for key portions of the NAM’s tax portfolio representing the manufacturing community on Capitol Hill and in the business community and working closely with the NAM membership. She served as the Director of Legislative and Government Affairs at the Telecommunications Industry Association, Manager of State and Federal Government Affairs for 3M Company, and in various positions on Capitol Hill including as Legislative Director for former U.S. Senator Olympia Snowe (R-ME), and as a senior legislative staff member for former U.S. Rep. Sue Kelly (R-NY).

Carolyn is a graduate of Gettysburg College in Gettysburg, Pennsylvania graduating with a B.A. in Political Science. She resides in Northern Virginia with her husband and three children.
Carolyn Lee

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