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New Reports Show Fair Share Amendment Will Help Small Businesses, Other Progressive Tax Changes Can Too

For Immediate Release: November 17, 2021

BOSTON, MA –  Our Commonwealth has traditionally celebrated small businesses as a way for everyday working people to build wealth independent from the large corporations that dominate our economy and society.  Massachusetts’ policies, however, often favor the largest corporations, leaving many of the smallest businesses struggling. Two new reports from the Massachusetts Budget & Policy Center (MassBudget) outline how the Fair Share Amendment and other progressive tax changes would support genuinely small businesses.

The first report,The Fair Share Amendment Helps Small Businesses: Public Investment, S-Corporations, and Extreme Incomes in Massachusetts, examines a key claim by opponents of the 2022 “millionaire tax” ballot question that would provide additional public support to education and transportation through a 4 percent tax on the portion of yearly personal income over $1 million. Most small business owners are not required to pay corporate income taxes and instead only pay taxes on profits “passed through” as income on their personal taxes. Opponents of the ballot question attempt to equate those who will pay the millionaire tax with people who make their livelihood operating genuine small businesses because both groups often use “pass-through” tax arrangements such as S-corporations and partnerships. The report finds:
  • Only 2.6 percent of tax filers who receive pass-through income have taxable incomes over $1 million.
  • US Treasury research finds fewer than half of pass-through income recipients operate real businesses. Those with the highest incomes are especially likely to use pass-through corporations for their passive investment trusts or for claiming tax deductions that reduce their taxes on other activities.
  • Thousands of Massachusetts pass-through S-corporations, among them Fidelity Investments, are not small businesses at all. They are very large corporations with hundreds of millions or even billions of dollars in annual revenue. 

“People who run small businesses aren’t pulling in seven-figure incomes,” said Phineas Baxandall, Senior Analyst and Advocacy Director for MassBudget and author of the paper. “It’s misleading to equate these situations just because people with extremely high incomes often utilize tax arrangements meant for small businesses.”

The reports note that the legislature’s proposed $500 million bailout of employers’ unemployment insurance trust fund, despite rhetoric centered around helping small businesses would chiefly subsidize large businesses. The average small business is a sole proprietorship that doesn’t make payments to the unemployment fund. Moreover, 96 percent of Massachusetts payroll is in companies with annual revenue over $1 million. 

The second report offers policies that would actually favor small businesses. The new study, “Three Progressive Tax Policies to Help Small Businesses in Massachusetts” describes three tax reforms that would help rebalance the tax contributions made between small and large businesses without compromising the vital public revenues that support schools, roads, and other public systems that help small businesses thrive. To help small businesses, the report recommends:
  • Cities and towns adopt the small commercial entity property tax exemption which grants exemptions for the smallest businesses, with no reduction in municipal revenue.
  • Rebalance unemployment taxes. In Massachusetts, employer contributions are set based only on the first $15,000 of each worker’s wages, requiring higher tax rates on this small base. As a result, smaller businesses and those in lower-income regions pay taxes on a larger percentage of their employees’ wages while larger corporations pay a smaller share. Spreading taxes across a broader base will correct this.
  • Scale minimum taxes to business size. Currently, all businesses are required to pay the same $456 minimum corporate income tax — a meaningful amount for a truly small business and a rounding error on weekly catering expenses for the largest corporations.

“There’s no shortage of ways to support local small businesses without compromising the public systems that also support small businesses and their communities,” said Baxandall. “Too often Massachusetts enacts tax policies in the name of helping small businesses that chiefly benefit the largest corporations. Policies should be carefully targeted to avoid this charade.”

Two-thirds of entrepreneurs use family or personal savings to start a company, yet a typical U.S. white family holds eight times the wealth of the typical Black family and five times the wealth of a typical Latinx family. Inequitable tax codes alongside ongoing legacies of systematic racism, such as discriminatory banking practices, present additional obstacles for people of color to start and grow small businesses. 

Key staff related to these studies are available for additional questions or comments upon request.
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