House Panel Passes Six Business Tax Provisions

Today, the House Committee on Ways and Means held its first markup of tax legislation in several years to consider six separate pieces of legislation.  All six bills would make certain expired or expiring tax provisions permanent, including tax incentives important to businesses of all sizes.    Although the votes on the measures were mainly party-line votes, these measures (frequently called “tax extenders”) are among many that lawmakers from both parties have been supportive of in the past to boost economic growth and development, especially among small businesses.

One bill, H.R. 4457, would permanently extend the limit on Section 179 small business expense write-offs to $500,000.  Since the previous tax extender expired at the end of 2013, the current write-off is only $25,000.  This provision, which the Committee approved by a 21-14 vote, is among the most important tax extenders for franchise small businesses, and IFA has consistently advocated for its inclusion in tax extenders packages proposed in recent years.

Another measure, known as the “CFC look through” rule, addresses the treatment of payments between related controlled foreign corporations, and allows multinational companies to more easily move money between foreign subsidiaries.  The Committee passed this measure by a vote of 22-14.  A third bill, which passed by a vote of 21-13, addresses the tax implications of companies converting to Subchapter S, or “pass-through,” tax status.  The Joint Committee on Taxation (JCT) estimates that the six measures will cost a combined $310 billion over a 10-year period.

House Committee Debates Temporary Business Tax Provisions

The House Ways & Means Subcommittee on Select Revenue Measures held a hearing today on the Framework for Evaluating Certain Expiring Tax Provisions.  The Members of Congress questioned several economist witnesses on how to best analyze the value of expiring tax provisions, and by which metrics they should be judged.  Alex Brill, a Research Fellow at the American Enterprise Institute, urged the committee to consider how a certain provision affects the economy as a whole as opposed to only examining the direct impact on the provision’s targeted industry.

The witnesses were unanimous in their dislike of temporary provisions, arguing that they create uncertainty for businesses.  Dr. Jim White of the Government Accountability Office advised the subcommittee to clearly define the goals of each program to determine its permanence.

Aaron Goldstein, the Undersecretary for Housing and Community Development in the Commonwealth of Massachusetts, expressed the importance of continuing many credits before tackling tax reform, as they have a profound impact on the lives of many.  He cited the development of a new hospital in Holyoke, MA that has created many jobs and is an important factor in the revitalization of the city.

Members of the Subcommittee emphasized the need to analyze programs pragmatically and empirically, and stressed the gravity of their task in the greater context of comprehensive tax reform and tackling the budget deficit.

The Obama Administration’s corporate tax proposal: what will it mean for franchise small business owners?

The Obama Administration is set to put forth plans today to reform the corporate tax code today, according to USA TODAY:

Treasury Secretary Timothy Geithner will unveil a proposed business tax plan that would lower the corporate tax rate from 35% to 28%, the administration announced this morning.

The plan would make up lost revenue by eliminating tax loopholes and simplifying a business tax system that an administration statement called “uncompetitive, unfair, and inefficient.”

President Obama’s “framework for business tax reform” is designed to “enhance American competitiveness by simplifying the tax code and eliminating dozens of loopholes and subsidies; incentivizing job creation and investment here at home; and lowering the business rate while broadening the tax base,” according to an administration statement.

Sounds great, right? Businesses love lower tax rates so what could be the harm in that? 

The problem lies in the fact that by only pursuing reform to the corporate tax code through a “piecemeal approach”, reform may negatively impact the more than 80 percent of franchise business owners who are pass-through entities such as S-corporations or LLCs and file their business income on their personal income tax return.

An IFA survey shows job creation and growth by franchise businesses could be negatively impacted through an approach of corporate tax reform without individual reform, given individual rates for many small business owners are set to increase at the end of 2012. In the survey, 88 percent of franchisors and 73 percent of franchisees indicated that higher tax rates on households earning more than $250,000 per year will negatively impact their business.

IFA firmly believes that tax reform should only be addressed through a comprehensive approach. While we appreciate the President recognizing that corporate tax reform is needed to keep the U.S. competitive in a global economy, we cannot support corporate tax reform on the backs of the small businesses that represent the majority of job creators in this country.

Leaving behind individual reform and pursuing only corporate reform would likely increase the uncertainty for franchise business owners at a time when the franchise industry is poised to be a leading driver of the economic recovery after three years of declines. IFA’s 2012 Franchise Business Economic Outlook forecasts projects the industry is poised for approximately 2 percent growth in 2012 in jobs (168,000) and franchise establishments (14,000).

Posted by Matt Haller, IFA Sr. Director of Communications

Members of the International Franchise Association joined Senate Majority

Members of the International Franchise Association joined Senate Majority Leader Mitch McConnell (R-Ky.), Sen. John Barrasso (R-Wyo.) and Sen. Marco Rubio (R-Fla.) for a press conference yesterday to discuss burdens that policies being pushed by some Democrats and the administration are placing on franchise businesses’ ability to sell more franchises, hire workers and grow the economy. 

“Franchise small businesses need government to get out of the way in order to continue creating jobs at the rate they have historically,” said IFA President & CEO Steve Caldeira. “We applaud Senate Minority Leader McConnell for echoing that message and urge the administration and all members of Congress to develop bipartisan, pro-growth solutions that help franchise businesses to create jobs.”

“The government itself is the problem now,” said McConnell. “We have to allow  the private sector to do what it does best which is to to grow, expand, and create jobs.”

“In recent years, one of the reasons I have not sought to grow is uncertainty surrounding the health care laws,” said David Barr, Chairman of PMTD Restaurants LLC and its affiliates (a franchisee of KFC and Taco Bell) and Rita Restaurant Corp. (the owner and operator of Don Pablo’s Mexican Restaurants). “Obamacare will force me to either decrease employees or move workers from full-time to part-time employees to avoid paying penalties.”

Unless Congress repeals or significantly changes the health care law, 3.2 million full-time employees and tens of thousands of franchise businesses will be at risk of losing their jobs, according to a recent report prepared by Hudson Institute for the International Franchise Association.

“All of my business income is needed to continue to grow and create jobs,” said Gail Johnson, CEO of Rainbow Station, which is a franchise that offers nationally accredited early childhood education and school age recreation programs. “Taking away income from small business owners like myself  through a tax increase is quite simply  a job smasher.”

IFA has urged Congress to consider permanent, comprehensive tax reforms that encourage job creation by franchise businesses, but that also do not hurt small businesses and franchises that file as individuals. Click here to view IFA’s recent letter to Senators.  

“Small businesses that want to grow and have a track record of success should be able to get loans from lenders, said Bob Dorfman, a Five Guys multi-unit franchisee with 9 stores in Tampa, Fla., 10 stores in Columbus, Ohio, 14 stores open in Houston and South Texas, and a commitment with Five Guys to open and operate 103 total stores. “Lenders should be free from overregulation and scrutiny that’s unnecessarily holding back job creation.

Over 82,000 new jobs and over $10 billion in economic output will be lost in 2011 as a result of lack of credit flow to franchised small businesses, according to the IFA Small Business Lending Matrix & Analysis, Vol. 3.

“We have heard today that the rules and the regulations coming out of Washington are making it harder and more expensive for the private sector to create jobs,” said Barrasso.

“Let’s listen to the job creators and create an environment where they can go out and Americans can do what they have done better than anyone in the history of the world,” said Rubio. “They haven’t forgotten how to go out and start a business. These people haven’t run out of good ideas. They just need a government that makes it easier for them to go out and do that and not harder.”

Posted by Matt Haller, IFA Sr. Director of Communications