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