Taxes and Small Businesses

Donald Marron, via Ezra Klein.  I wouldn't have guessed this would be thought #1, but it makes sense:

America’s tax system is needlessly complex, economically harmful, and often unfair. Because of a plethora of temporary tax cuts, it’s increasingly unpredictable. And it fails at its most basic task, raising enough money to pay our government’s bills. For these reasons, the time has come for fundamental tax reform.
Such reform could have far-reaching effects on every participant in the economy, including small businesses. To provide a foundation for thinking about these effects, my testimony discusses basic facts about the relationship between tax policy and small business. I make six main points:
1. Today’s tax code generally favors small businesses over larger ones. Provisions such as Section 179 expensing, graduated corporate tax rates, and special, low capital gains taxes benefit businesses that are small in terms of investment, income, or assets.

In the end, much like Warren Buffett himself, Berkshire Hathaway has a significant tax bill, but it can easily afford it.  Whereas many small businesses need every dollar they can get, Berkshire has a pile of cash sitting around in case Goldman, Sachs happens to need some.  I thought this statement in the Berkshire annual report was interesting:

For good reason, I regularly extol the accomplishments of our operating managers. Equally important, however, are the 20 men and women who work with me at our corporate office (all on one floor, which is the way we intend to keep it!).

This group efficiently deals with a multitude of SEC and other regulatory requirements, files a 14,097-page Federal income tax return along with state and foreign returns (emphasis mine), responds to countless shareholder and media inquiries, gets out the annual report, prepares for the country’s largest annual meeting, coordinates the Board’s activities – and the list goes on and on.

But for a small business, I can see where someone might complain about how bad their taxes are or how tough regulations are, even if they are the same or even less rigorous than for larger businesses.  These are activities for which scale eases the burden.  I think most of the Republican talk about easing regulations and tax burden take advantage of this differential by getting the votes from the small businesses, who think they will benefit significantly, but hand back the most benefit to the large businesses who actually don't necessarily need it.  A small break for a big company can produce a lot of money, of which a portion can be donated back to the politician.  Meanwhile, the small businessperson may save a little bit, but their larger competitor will save even more, and be more competitive, and will have more of a say in how new rules will help them leverage advantages over the small guy.  It works either way, the more burdensome the regulation, the easier it is for the big business to comply with versus the small business; the less burdensome the regulation, the big business profits more dramatically.  In other words, the small businessman can vote his personal interest for less regulation and less taxes, but these rules also help out the big business, and the public in general pays the cost.