I know business owners are weary. So are the nation’s 1099ers – incredibly hard working professionals who make a living by providing services as independent contractors to their clients.
President Trump and our Congressional representatives don’t make it easy. Every new tax proposal that gets media attention and then burns out for lack of support, creates a frustrating numbness among business owners. It’s understandable why they stop voicing their concerns because there is no positive return from Washington on their time. It’s also why the greater small business community is so poorly represented on tax legislation.
The Real Deal – Corporations Pay a Lower Tax Rate
President Trump would like to lower the corporate tax rate to 15%, although in recent weeks he has expressed a willingness to settle at 20%.
Currently, the nation’s top corporate income tax rate is approximately 39 percent; however this big sounding number is not actually what large corporations pay each year. The real number is the effective tax rate corporations pay after they itemize all their tax credits and tax deductions.
A survey of some companies in the Dow Jones Industrial Average over a five quarter period reveals how little corporations can pay if they have the right kind of deductions to work the tax code to their advantage. The following companies paid less than 30% federal income tax:
Caterpillar Inc.: 28%
J.P. Morgan Chase & Co.: 28%
Goldman Sachs Group: 27%
United Technologies: 26%
Apple Inc.: 26%
Travelers Cos.: 25%
Boeing Co.: 24%
Procter & Gamble Co.: 23%
Intel Corp.: 22%
Exxon Mobil Corp.: 21%
Coca-Cola Co.: 21%
Cisco Systems Inc.: 21%
Merck & Co.: 21%
Pfizer Inc.: 18%
Chevron Corp.: 14%
Nike Inc.: 14%
Microsoft Corp.: 12%
General Electric: 1%
As a shareholder in many of these companies, I know it is the job of each company’s Chief Financial Officer to pursue every legal opportunity to boost cash flow and net income for shareholders. So no, the evil of our nation’s tax policy is not rooted in how corporations are governed, it’s how our nation is governed.
Washington Forgets Small Business Owners
Over 90% of our nation’s small businesses are organized as sole proprietorships, S-corporations or Limited Liability Companies. In simple terms, this means small businesses are taxed at the owner or partner’s personal income tax rate, not the corporate tax rate. Currently, the top tax rate for individuals is 39%.
Under the Trump plan, there will be three tax brackets for single filers or joint filers: 12%, 25% and 35%. So what does this means for independent contractors and small business owners throughout the United States? We don’t know because there are no details behind the tax bracket percentages. Ugh! It’s hard to know if you are for or against something if you don’t have the information to make an informed opinion.