WASHINGTON – The 2008 president election will offer small business owners a choice of two very different approaches to addressing their top concerns — the cost of health care, energy and federal taxes.
John McCain’s campaign says a key to faster economic growth is helping small businesses.
The presumptive Republican nominee released a “Jobs for America” plan recently that aims to make it easier for small businesses to grow because they create the majority of jobs in America.
His agenda: lowering energy costs, controlling health care costs, changes in the tax code designed to make it “fair, pro-growth and competitive,” and opening new markets through trade.
Obama hasn’t promulgated a small business agenda per se, but he has taken positions on most of the major issues that concern small business owners.
In addition, Obama has two small business initiatives in his economic plan. He would eliminate federal capital gains taxes for startup businesses and spend $250 million annually to establish small business incubators in disadvantaged communities that would dispense shared resources or advice.
Obama recently added a third proposal — a tax credit for small businesses that offer health insurance to their employees that would offset half the cost of employer premiums.
The cost of health insurance is the No. 1 issue facing small businesses, according to a February survey by the National Federation of Independent Business, the nation’s largest small business organization. The cost of fuel — natural gas, gasoline, diesel and home heating oil — ranked No. 2.
Several of the top issues — property taxes and state taxes — aren’t federal matters, but the top 10 also included federal taxes on business income, tax complexity, unreasonable government regulations and electricity costs.
The survey, which ranked 75 issues, also found some variance between the issues most on the minds of small business owners and what the candidates think is at the top.
McCain’s small business agenda includes his support for expanding international trade. The ability to export products or services ranked last in importance in the NFIB survey and competition from imported products ranked No. 66.
Douglas Holtz-Eakin, a senior policy adviser to McCain and a former director of the Congressional Budget Office, theorized that small businesses don’t rate international trade as an important issue because they support the current policies in Washington. He predicted that international trade would rank much higher in the next NFIB survey if Democrats were able to pass protectionist trade proposals.
McCain recently traveled to Colombia to demonstrate his support for a bilateral trade deal with that country, which House Democratic leaders have refused to bring to a vote.
Obama opposes the Colombia pact. He’s promised to not approve new trade deals unless they include labor and environmental standards. And he’s pledged to renegotiate the North American Free Trade Agreement. During a February debate in Cleveland, he said in reference to NAFTA, “I think we should use the hammer of a potential opt-out as leverage to ensure that we actually get labor and environmental standards that are enforced.”
What the NFIB survey did show is that many of the top issues for small business owners are also the top issues that average voters cite in national polls.
Health care costs and access to affordable insurance is a top issue for both employers and employees. And at many mom-and-pop businesses, the employees include spouses, relatives and business partners.
McCain and Obama disagree on how to make health insurance more widely available to the nearly 47 million Americans without coverage. McCain wants to make it easier for individuals and families to buy their own insurance by providing them with tax credits. Obama would expand coverage my mandating that parents obtain coverage for their children and make it more affordable to do so by expanding two government programs targeted at low-income families — Medicaid and the State Children’s Health Insurance Program.
Their approach to putting a lid on the cost of energy also differs.
Obama has campaigned against the gasoline tax holiday proposed by McCain. He opposes the authorization of new federal leases for oil and gas drilling that McCain supports. And he opposes the rollback of the federal tax on imported ethanol that McCain advocates.
Both support alternative fuels, but McCain also supports construction of 45 new nuclear power plants by 2030.
On taxes, McCain would keep the top rate on individual income taxes at 35 percent and lower the corporate rate to 25 percent. Obama has no specific plan for lowering corporate tax rates, but would eliminate the write-offs corporations take when they shift production overseas. Obama also would allow the top income tax rate to rise to the 2001 level of 39.6 percent.
McCain also took a potshot at the Democrats’ presumptive nominee, Barack Obama. “If you are one of the 23 million small business owners in America who files as an individual rate payer, Senator Obama is going to raise your tax rates,” he said.
However, the nonpartisan Tax Policy Center says Obama’s proposal to raise the top individual rates would, at most, affect 663,000 individuals in the 33 percent and 35 percent tax brackets who are expected to report business income on their 2009 tax returns.
Comparing McCain and Obama on small business issues
WASHINGTON – The two major candidates for president – Republican John McCain and Democrat Barack Obama – have mapped out widely different approaches to the issues of top concern to small businesses.
Cost of health coverage
McCain would eliminate the tax exemption employees get for employer provided health insurance and replace it with a refundable tax credit of $2,500 for individuals and $5,000 for families to either purchase their own coverage or offset their portion of the cost of employer-provided coverage.
Obama would keep the current tax exemption for employer health coverage and offer a new tax credit for up to 50 percent of the cost of coverage provided by small businesses.
Both candidates also support measures to control rising health care costs.
Cost of fuel and electricity
McCain supported a tax holiday for the federal gasoline tax through Labor Day — a proposal Obama opposed.
McCain supports ending the taxation of imported ethanol, expanding domestic oil and gas drilling, wants the nation to build 45 new nuclear power plants by 2030 and would spend $2 billion annually to research clean-coal technology.
Obama supports congressional passage of a second economic stimulus package that would provide rebate checks to people to offset the high cost of gasoline and impose a windfall profits tax on oil companies with the money going for home weatherization and fuel assistance programs for low-income families.
Obama opposes expanding drilling rights and would keep in place the tax on imported ethanol.
Corporate tax rate
McCain wants to reduce the corporate income taxes to 25 percent from the 35 percent rate effectively paid by large corporations.
But corporations with taxable incomes under $75,000 already pay a 25 percent rate and those with taxable income under $50,000 pay 15 percent.
George Plesko, a professor of accounting at the University of Connecticut, said his analysis of Internal Revenue Service data indicates a minority of corporations are subject to the 35 percent rate.
In fact, many small business corporations may not pay any corporate taxes. In 2003, just more than 1.8 million corporations filed a Form 1120A with the IRS to report income below $500,000 and only half of them – 902,015 – had a positive net income subject to the corporate tax rate.
Obama has not made a specific proposal for lowering the corporate tax rate, but has indicated he would consider cutting the top rate during a larger overhaul of corporate taxes that eliminates the tax breaks given to companies that move operations overseas.
Individual tax rates
Most small business owners pay federal taxes based on the individual rates paid by singles, a head of household or married couple.
McCain wants to permanently extend the Bush tax cuts that lowered the top income tax rate to 35 percent.
Obama would restore the top individual rates of 36 percent and 39.6 percent paid by high income Americans.
In 2009, an estimated 457,000 individuals in the current top tax bracket of 35 percent will report business income on their tax returns, according to Len Burman, director of the nonpartisan Tax Policy Center.
Although federal estate taxes do not rank among the top 30 issues listed by members of the National Federation of Independent Business in a February survey, McCain lists it as part of his small business agenda. The Arizona senator would raise the threshold for estates subject to the federal estate tax to $5 million for individuals and $10 million for couples, after which the federal tax rate would be 15 percent.
Obama would freeze the estate tax at 2009 levels. That would mean that estates of individuals with more than $3.5 million in assets and couples with more than $7 million would be subject to a 45 percent tax rate above those amounts.
“In 2011, we estimate that about 4,100 estates would be taxable under Senator McCain’s plan and 8,300 under Senator Obama’s,” said Burman. In comparison, about 2.4 million Americans died annually. About one-tenth of 1 percent of estates would be taxed under the McCain plan and about three-tenths of 1 percent under the Obama proposal.
Gannett News Service