The Heavy Tax Burden and the Plight of the Small Business


small business

There are few things that receive almost universal acceptance in American politics. There is consensus on almost nothing. That is, except for one thing that comes to mind – the plight of the small business. All sides seem to want to help small businesses succeed. Even the political left wants to “stand up for the little guy” in support of small businesses.

As an owner of a small business for more than 16 years (and a staff of five), I can attest to the fact that small businesses are over-regulated, overtaxed, and overburdened with overreaching federal, state, and local governments. Almost everyone agrees that something should be done about these issues. Yet, they remain, with almost no political will power seeking to do the things that can really unbind and aid small businesses to grow – one of the chief issues being the enormous tax burden small business must endure.

A small retailer in my state must pay the following taxes (assuming the business is set up as some type of corporation):

– Federal Personal Income Tax (for the business owner)
– State Personal Income Tax
– Federal Corporate Income Tax
– State Corporate Income Tax
– Local Property Taxes on Inventory and Fixtures
– Local Property Taxes on the building where the business resides
– State Franchise Tax
– State Unemployment Insurance (which is really a form of taxation)
– Employer Contribution to Employee’s Social Security

That is nine different taxes each small business has to pay. One of the reasons new businesses fail is because they must pay a substantial tax burden even when the business has not yet made a  profit. Of the nine forms of taxes listed above, five of them are required to be paid, even when a business is losing money (a common occurrence for the first couple of years of a business’ life). All of these taxes are excluding various permits that may be required, and also excluded are capital gains taxes coming from real estate that a business might own if it ever needs to sell the real estate to move and expand.

One of the reasons so much of the tax burden has been placed on businesses in general, and small businesses in specific, is that politicians are of the belief that they can hide taxation from the populace by having businesses either pay the taxes or collect them, such that people almost no longer notice them or forget about them. And, this is often the case. As long as someone else is paying these taxes (even though everyone pays them through the price of goods and services), the taxes are out of sight for most, and therefore out of mind.

In addition to direct taxes a business must pay, there are also pass-through taxes that are required. These taxes are ones that the business does not have to pay directly, but are required to collect on behalf of government entities to pass along to the government. These taxes include:

– Federal Withholding Taxes
– State Withholding Taxes
– State and Local Sales Taxes

While these taxes are not directly paid by the business, there is a significant cost to collecting, processing, and sending off the payment of these taxes to government entities. A small business must either pay for expensive computer software to aid them and handle the accounting and payment themselves, or must hire someone else to do it. A business is not reimbursed for these costs, nor are they paid for their services, acting as unpaid employees of the government. Not only does this place businesses in an awkward and unfavorable position between their customers and their employees and government entities, but for small businesses, the expenses and work are more significant than for larger businesses with more resources at their disposal.

According to the Small Business Administration, “more than half of Americans either own or work for a small business, and they create about two out of every three new jobs in the U.S. each year.” That is a significant impact on the economy. However, small businesses are rewarded for hiring more people by paying more taxes. They are rewarded for contributing more to the economy by increasing their tax burden.

The majority of Americans are unaware of just how significant the tax burden is on the success or failure of small businesses. These businesses represent the greatest opportunity for economic expansion and for employment opportunities that the nation has. Yet, the majority of the populace has no idea of the burdens they bare, primarily because politicians do not want them to know. As long as the burdens are held by the fewer-in-number business owners, the populace at large is more content. It is important to shine a light on these burdens, because of the tremendous part of the economic engine these small businesses hold.

Information is the key. When voters are talking about the plight of the small business, politicians will begin to better address the problems. This is something that is incredibly bipartisan, at least in the minds of the populace. This is not something which is Republican versus Democrat, or even Libertarian or Green Party versus everyone else. This is people versus politicians. The only way to change things for the small business is for the people to demand it.

* Danny Chabino has owned his own business for 20 years. He has been a proud employer and operator of a small retail business for 16 years.

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Danny Chabino

Danny Chabino has a background in operating small businesses. He has been involved in managing and/or owning the operations of multiple retail establishments, a sub-prime lending company, a small insurance company, a small telemarketing venture, and insurance consulting. In addition to these activities, he also has spent many years managing investments in stocks and stock options as a successful trader. He is the married parent of two adult children, living as a proud lifelong Oklahoman and a part-time redneck. Danny writes for the enjoyment and pleasure of sharing ideas and for the love of writing itself. His opinions skew libertarian, but he enjoys hearing open debate and listening to or reading of opposing ideas. As an odd confession, he personally detests politics, but enjoys writing about political ideals and philosophies.

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