As the tax reform debate continues, a new study finds most small businesses are paying a higher effective tax rate than corporations.
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According to the study, S corporations and partnerships – two types of pass-through entities favored by small businesses – are paying significantly greater tax rates than corporations. The research was conducted by Quantria for the National Federation of Independent Business and the S Corporation Association.
“This study confirms what many Americans already know: Our broken tax code is too complex and imposes an unfair burden on small businesses – the lifeblood of local economies,” says Rep. Tim Griffin (R-AR).
According to the report, S corporations are paying the highest average effective tax rate at 31.6%, while partnerships are at 29.4%. In comparison, corporations are paying an effective tax rate of 17.8%. This is lower than the rate paid even by the smallest S corporations, which are paying 19%.
Additionally, changes earlier this year raised the top marginal tax rates for individuals and pass-through entities above the top rate for corporations (44.7% vs. 35%).
Lawmakers say the study confirms the need for tax reform for small businesses.
“We know Main Street businesses employ most of the workers, and this study shows they pay lots of taxes too,” said Rep. Dave Reichert (R-WA). “Tax reform needs to be comprehensive, and it needs to level out the tax burden paid by businesses of all types.”