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Small businesses to Republicans: Don't cut corporate taxes

Small businesses owners have long joined with big corporations to back certain Republican candidates. But now they're breaking rank and telling congressional Republicans not to make the deal at the very top of big businesses鈥� wish list 鈥� a cut in corporate tax rates.  

Can it be that America鈥檚 small businesses are finally waking up to the fact they鈥檙e being screwed by big businesses?聽

For years, small-business groups such as the National Federation of Independent Businesses have lined up behind big businesses lobbies.

They鈥檝e contributed to the same Republican candidates and committees favored by big business.聽

And they鈥檝e eagerly connected the Republican Party in Washington to its local business base. Retailers, building contractors, franchisees, wholesalers, and restaurant owners are the bedrock of local Republican politics.

But now small businesses are breaking ranks. They鈥檙e telling congressional Republicans not to make the deal at the very top of big businesses鈥� wish list 鈥� a cut in corporate tax rates.聽聽

鈥淕iven the option, this or nothing, nothing is better for our members,鈥� the director of legislative affairs at Associated Building Contractors聽聽Bloomberg News.聽(Associated Building Contractors gave $1.6 million to Republicans in the 2014 midterm elections and nothing to Democrats.)聽

Small businesses won鈥檛 benefit from such a tax deal because most are S corporations and partnerships, known as 鈥減ass-throughs鈥� since business income flows through to them and appears on their owners鈥� individual tax returns.聽

So a corporate tax cut without a corresponding cut in individual tax rates would put small businesses at a competitive disadvantage.聽

And since a cut in the individual rate isn鈥檛 in the cards 鈥� even if it could overcome the resistance of Republican deficit hawks, President Obama would veto it 鈥� small businesses are saying no to a corporate tax cut.聽聽

The fight is significant, and not just because it represents a split in Republican business ranks. It marks a new willingness by small businesses to fight against growing competitive pressures from big corporations.聽

In case you hadn鈥檛 noticed, big corporations have extended their dominance over large swaths of the economy.聽

They鈥檝e expanded their intellectual property, merged with or acquired other companies in the same industry, and gained control over networks and platforms that have become industry standards.

They鈥檝e deployed fleets of lawyers to litigate against potential rivals that challenge their dominance, many of them small businesses.聽

And they鈥檝e been using their growing economic power to get legislative deals making them even more dominant, such as the corporate tax cut they鈥檙e now seeking.聽

All this has squeezed small businesses 鈥� undermining their sales and profits, eroding market shares, and making it harder for them to enter new markets.聽

Contrary to the conventional view of an American economy bubbling with innovative small companies, the rate that new businesses have formed has slowed dramatically.聽

Between 1978 and 2011, as big businesses expanded and solidified control over many industries, the pace of new business formation was聽halved, according to a Brookings Institution聽聽released last year.聽

The decline occurred regardless of the business cycle or which party occupied the White House or controlled Congress.

Contributing to the drop was the deregulation of finance 鈥� which turned the biggest Wall Street banks into powerhouses that swamped financial markets previously served by regional and community banks. Not even Dodd-Frank has slowed the pace of financial consolidation.聽

In consequence, many small businesses can鈥檛 get the financing they once got from state and local bankers. Over the past two decades, loans to small businesses have dropped from about聽of total bank loans.

That means the Fed鈥檚 rock-bottom interest rates haven鈥檛 percolated down to many small businesses.聽

Tensions have also grown between giant franchisors 鈥� restaurant chains, fast-food corporations, auto manufacturers, giant retailers 鈥� and their franchisees.

Franchisees have found themselves聽聽in contracts that siphon off profits to parent companies, give franchisors the right to unilaterally terminate the agreements, and force franchisees into mandatory arbitration of disputes.

Complaints are mounting about parent corporations closing successful franchisees for minor contract violations in order to聽聽them at high prices to new owners.聽

Meanwhile, small businesses are feeling the same financial pinch the rest of us endure from big corporations whose growing market power is letting them jack up prices for everything from pharmaceuticals to Internet connections.聽

So the willingness of small business groups to take on big business on its top legislative priority could聽mark the start of a political realignment.聽

If small businesses were willing to ally themselves with consumer, labor, and community groups, they could press for stronger antitrust enforcement against giant corporations.

As well as for breaking up Wall Street鈥檚 biggest banks and strengthening community banks.

They could also get legislation banning take-it-or-leave-it contracts requiring mandatory arbitration.

Such an alliance might even become a powerful voice for campaign-finance reform, containing the political clout of giant corporations.聽

Don鈥檛 hold your breath. Small business groups have done the bidding of big business for so long that the current conflict may be temporary.聽

But the increasing power of big corporations cries out for new centers of countervailing power.

Even if the political realignment doesn鈥檛 happen soon, small businesses will eventually wake up 鈥� and could play a central role.