Income Tax Reform: Relative Implications for Small Business

摘要

Under present rules, small corporations within three different industries generally have tax advantages relative to large corporations in the same industry, both in attracting equity capital and in the sales of their products. The tax reform proposals included in the study would either reduce these competitive advantages of small corporations or, in the case of the Treasury proposal, actually shift the advantage from small corporations to large corporations. The analysis is done for businesses of different sizes and for three industrial groups. This study also estimates the impact of taxes on small growth companies. While differences in effective tax rates do exist between profitable mature corporations and profitable growth corporations, these differences are not large under present law. The differences would be smaller still under the proposed tax revisions. However, it is clear that growth firms suffer a competitive disadvantage due to the tax system during the initial, start-up years.