Former SBA Administrator Hector Barreto highlights the importance of tax reform for small and Hispanic businesses
Tax reform for businesses outside the corporate category
By Hector Barreto
Small and Hispanic businesses deserve favorable treatment, too
Corporate America’s interest in tax reform is obvious and understandable. Similarly, politicians’ interest in boosting our economy through incentives and breaks for large employers is not a mystery. But what about the importance of tax reform for groups who don’t make as many economic headlines (even if they should)? Our leaders should take a closer look at the economic and political advantages of reaching out to two overlapping, economically powerful groups — the Hispanic and small-business communities — when it comes to tax reform.
Both Hispanics and small-business owners are overdue for some positive attention from their elected officials. Both groups end up, too often, in a political power category that feels like “other” — an afterthought or a talking point. This is both an economic and a political mistake; the right steps on tax reform could begin to rectify it.
Take, first, the small-business sector. It is underrepresented and misunderstood by politicians, popular culture and the media, in large part because their moniker is tremendously misleading. The word “small” diminishes and mischaracterizes our nation’s entrepreneurs before the conversation can even begin. Yet, small firms create two-thirds of our country’s net new jobs and are responsible for almost half of gross domestic product.
In spite of representing half the economy, small-business owners, historically, have not been able to compete in the influence business with corporate America. From in-person lobbying to political fundraising, big business persistently dwarfs small business in the corridors of power. It’s a logistical problem with real economic consequences — individual small-business owners don’t have the time or budget to compete in the Washington game, so their critical perspective is often missing from the public policy debate.
When it comes to tax reform in particular, elected officials are easily distracted by news or speculation about stock market swings and tax inversions, which leads them to focus too heavily on corporate tax rates, not individual rates — the category where small-business owners pay their tax bill. This is dangerous. Tax reform that leaves small, independent businesses exposed to the highest tax rates and crippling complexity will fail to realize the economic benefits our leaders seek.
Now take another misunderstood and underrepresented group — one that is, coincidentally, uniquely entrepreneurial. I wish more people understood that Latinos are not just their growing population numbers, not just the face of the immigration debate. They are Americans. They are patriots. They are a young, growing, industrious and highly productive part of the U.S. economy. The economic output of our population — right around 55 million people — would actually make the world’s seventh-largest economy. As a Hispanic American, I am most proud of the fact that Latinos are starting small businesses at a faster rate than any other group. Latino’s entrepreneurial spirit and muscle are incredibly important right now, because America’s essential business dynamism is declining.
Tax reform that encourages and rewards the Hispanic community’s entrepreneurial DNA through lower individual tax rates would show this group that their politicians see them for who they are: a productive and economically powerful group.
President Trump and congressional leaders should speak directly to the overlapping small-business and Hispanic communities in the coming weeks. There is an opportunity to show us that we are understood, that we are more than an afterthought or a leftover category when it comes to economic policy.
When discussing tax reform, leaders should never miss an opportunity to discuss the fact that privately held businesses most often are organized as pass-through entities and file their taxes as individuals — this will show us that they understand our unique position and our importance. We know that corporate rates matter, too, but corporate-only tax reform would be half a loaf — leaders should talk about it that way.
There is one independent business owner whose relationship with the Hispanic community is complicated, whose voice will matter most when it comes to tax reform: Mr. Trump. While not a typical business owner (his business is much larger than the average independently owned firm), Mr. Trump is on the independently owned side of the overall American business sector. His business entities are not publicly held or traded on the New York Stock Exchange, which puts him, in ways that matter, in the same camp as millions of other entrepreneurs.
Other business owners — Hispanic and otherwise — know and appreciate this. They believe that Mr. Trump understands them and speaks their language. They are counting on him to understand the difference between corporate taxes and small-business taxes. We hope he leads the way in showing the rest of the country that entrepreneurs are economic heroes who deserve to be heard and helped, no matter what demographic group they hail from.
• Hector Barreto is chairman of the Latino Coalition and former administrator of the U.S. Small Business Administration.