Obama vs. Romney: How do we Tax Small Business?

October 04, 2012

During the first debate of the 2012 presidential election, Romney and Obama went head to head on an important matter to small business owners: taxation.

Small businesses continue to ask – What’s in it for us?

The first presidential debate in the 2012 election will be remembered mostly for the contrast of an aggressive, disciplined Romney against a subdued, professorial Obama. This debate was dominated by the discussion of the candidates differing visions on the best tax policy for the US and once again veered towards politician’s favorite topic – small business.

Romney reminded the audience that one of the five key components of his plan is to “champion small business” and said small business starts in the US are at a 30 year low. Not to be outdone, Obama also expressed his support for small businesses and noted that he had cut taxes for small businesses 18 times over the last four years. While both professed their love for small businesses as expected, they also finally got closer to the meat of the issue – which candidate’s tax plan will do the most to help small businesses grow and prosper?

Which do you pay – the corporate or personal tax rate?

The answer to this question will also likely answer which candidate’s policy may work best for you. Romney batted down criticisms of his planned across the board tax cuts by stressing that 54% of America’s workers work in small business taxed at the individual tax rate, not the corporate rate which both he and Obama want to lower. With Romney’s tax plan if you’re in for a penny, you’re in for pound – tax breaks for the wealthy (potentially offset by a fuzzy “elimination of deductions”) are linked to lower taxes for small businesses taxed at the personal rate.

Obama countered that his plan, which eliminates that Bush-era tax cuts for anyone who makes more than $250,000, would assure that taxes don’t go up for 97% of small business owners. He went even further by letting the audience know that "under Governor Romney's definition there are a whole bunch of millionaires and billionaires who are small businesses. Donald Trump is a small business.”

So what is the small business tax policy?

The clashing statistics flying back and forth between the candidates might have only confused voters and muddied the waters for the time being. Since small businesses are taxed at differing rates depending on how they file, a simple small business tax cut is not achievable as a stand alone policy. But why not? Why do millionaires like Donald Trump need to go along for the ride? Why can’t small business of any size file at the corporate rate to eliminate confusion and potentially unsavory tradeoffs?

How do you file – at the personal or corporate rate? Which tax policy would you prefer as a small business owner? Post your comments below and let us know.

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