The Economic Recovery and Tax Act of 1981 was the successful scion of Senator Bill Roth and Representative Jack Kemp. Kemp – Roth, as it became known, was the centerpiece of tax reform during the Reagan years, and served as a model for how the United States could deliver tax relief to both the business sector and the American people at the same time. It fostered an era of impressive economic growth and prosperity that many pine for today.
But that was long ago in a faraway galaxy. Today’s tax reform mandate, while no less compelling, is far more complicated.
The national debt is over $19 trillion. The federal deficit has grown to $587 billion. The U.S. trade deficit has jumped to a five year high of $48 billion. At 39 percent, the United States has the highest corporate income tax rate in the developed world. Personal income tax rates top out at 39 percent. The U.S. tax system is burdening average Americans, and stifling American business. When big corporations get a cold, small and minority companies get pneumonia.
As the House Ways & Means Committee prepares for hearings on tax reform proposals next week, the time has come for enlightened leadership. The Origination Clause of the Constitution requires all revenue measures to originate in the U.S. House of Representatives. While the Senate can make amendments, tax bills emanate from the House in deference to its power of the purse. This means someone in the House GOP needs to step forward with pragmatic proposals that will lead to reasonable and reliable tax reform which can garner bipartisan support.
Leaving aside the border adjusted tax (BAT) for a moment, I would argue the most compelling reason for tax reform is to help small and minority businesses. It has become a cliché to state that small business is the backbone of America. And yet, that very backbone needs some chiropractic attention.
According to the U.S. Small Business Administration (SBA), there are nearly 28 million small businesses in America, accounting for 54% of all U.S. sales. Since the 1970s, small businesses provide 55% of all jobs and 66% of all net new jobs. The 600,000 plus franchised small businesses in the U.S. account for 40% of all retail sales and provide jobs for some 8 million people. The small business sector in America occupies 30-50% of all commercial space, an estimated 20-34 billion square feet.
Furthermore, the small business sector is growing rapidly. While corporate America has been "downsizing", the rate of small business "start-ups" has grown, and the rate for small business failures has declined. The number of small businesses in the United States has increased 49% since 1982. Since 1990, as big business eliminated 4 million jobs, small businesses added 8 million new jobs.
Small and minority businesses cite many challenges to their survival – access to capital, reasonable rates of credit, cash-flow crunch, burdensome regulations, and excessive federal tax. Every day, these stalwart firms face life-and-death financial decisions that are exacerbated by high corporate taxes. Unlike their large corporate counterparts, small businesses can rarely opt for offshore savings. They mostly are “made in America.”
Jack Kemp understood and cherished the value of small business to the American economy. As a party leader and vice presidential standard bearer with Bob Dole, he rose to become a consistent champion and vocal cheerleader for minority business. Kemp argued for a benign tax code that recognized the importance of small enterprises to the success and realization of the American Dream. And he proffered legislative solutions to make those dreams a reality. No doubt he learned a few lessons from working at his dad’s trucking business, in addition to hustling his way up to the top of the NFL from very humble beginnings.
Of course, Jack Kemp’s brand of statesmanship has been long since absent in the Capitol. He was one of the modern-day leaders who connected the principles of conservatism with caring for the little guy. Nowhere was that more manifest than tax policy, where Kemp went the extra mile to make sure the needs of small businesses were attended. It was a welcomed view among harder-line Reagan Republicans and supply-siders who, up to then, showed little concern for small and minority firms. It should be a welcome view for the businessman-in-chief, as well.
To be sure, the current tax reform debate is a work in process. Before it is over, there will be many fits, starts, twists and turns that will lead – we hope – to a comprehensive, bipartisan tax proposal. We do not know what form that will take, nor who will emerge as the tax reform leader.
Whatever happens along the way, one thing is for sure: if America is to be great again, tax reform must provide a special measure of relief for small and minority business. The future of the nation depends on it.
Adonis Hoffman (@AdonisHoffman) is chairman of Business in the Public Interest and adjunct professor at Georgetown University. He is the author of Doing Good—the New Rules of Corporate Responsibility, Conscience and Character.
The views expressed by contributors are their own and are not the views of The Hill.