[Congressional Record Volume 157, Number 31 (Thursday, March 3, 2011)]
[Senate]
[Page S1237]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




     SENATE RESOLUTION 88--EXPRESSING THE SENSE OF THE SENATE THAT 
BUSINESSES OF THE UNITED STATES SHOULD RETAIN THE OPTION TO ORGANIZE AS 
 THOSE BUSINESSES CHOOSE, INCLUDING THE FLOW-THROUGH ENTITIES, AND NOT 
               BE FORCED TO REORGANIZE AS C CORPORATIONS

  Ms. SNOWE submitted the following resolution; which was referred to 
the Committee on Finance.

                               S. Res. 88

       Whereas the tremendous growth in businesses organized as 
     flow-through entities, including S corporations, has resulted 
     in the number of flow-through entities far exceeding the 
     number of C corporations;
       Whereas there are more than 26,000,000 businesses operating 
     as flow-through entities in the United States, representing 
     82 percent of all United States businesses, relative to just 
     5,900,000 C corporations;
       Whereas these flow-through and small businesses create 70 
     percent of all new jobs and are responsible for 44 percent of 
     the total private payroll in the United States;
       Whereas under the Internal Revenue Code of 1986 as in 
     effect in March 2011, these job-generating businesses are 
     taxed at individual tax rates based on the individual income 
     of the business owners, making these businesses highly 
     sensitive to changes in individual tax rates;
       Whereas as of March 2011, 50 percent of all income above 
     $250,000 is attributable to flow-through businesses;
       Whereas, if individual tax rates increase after 2012 in 
     accordance with the proposals set forth by the President, 
     flow-through businesses will face a massive aggregate tax 
     increase, potentially in excess of $800,000,000,000;
       Whereas the Secretary of the Treasury has proposed forcing 
     flow-through entities to reorganize as C corporations to make 
     them subject to double taxation as a way to impose more taxes 
     on these businesses in order to pay for the budgetary 
     policies of the President; and
       Whereas forcing corporate reorganizations for purely tax-
     driven reasons represents a misguided incentive, a 
     misallocation of precious business resources, and a serious 
     threat to job creation: Now, therefore, be it
       Resolved, That it is the sense of the Senate that--
       (1) the Federal Government should preserve the 
     organizational options available for businesses to operate as 
     the businesses choose, including as flow-through entities;
       (2) raising taxes on businesses that create jobs will be 
     detrimental to the economic recovery of the United States;
       (3) generating increased tax revenue on the backs of the 
     small businesses of the United States is inconsistent with, 
     and will impede, job creation; and
       (4) any legislative approach to comprehensive fundamental 
     tax reform should include a debate on the individual rates at 
     which most businesses in the United States should be taxed, 
     rather than narrowly focusing on corporate tax rates or 
     forcing small business owners into corporate status for tax 
     purposes.

  Ms. SNOWE. Mr. President, I rise to submit a sense of the Senate 
resolution that clarifies my opposition to tax increases on the job-
creating sector of our economy--small business.
  It is becoming increasingly clear, and increasingly concerning, that 
the administration is proposing to raise taxes on America's small 
businesses, either by forcing them to reorganize as subchapter C 
corporations solely for tax reasons and be subjected to new and 
additional taxes, or, by allowing them to remain organized as flow-
through entities, where they will face massive increases after 2012 
when current tax rates expire. Our Nation simply cannot afford an 
impending tax increase of over $800 billion. Subjecting small 
businesses to the double taxation of corporate-entity status would be a 
major mistake.
  There has been tremendous growth in the number of flow-through 
entities--that is, non-C corporations--over the past 30 years and this 
growth has only accelerated in the last decade. Since 1997, S 
corporations have outnumbered C corporations. Fifty percent of all 
income above $250,000 currently is attributable to flow-through 
businesses. By 2007, only 5.9 million out of a total 32.1 million U.S. 
businesses, or just 18 percent, were C corporations, meaning the 
overwhelming number of businesses in this country organize as flow-
through entities.
  The administration is proposing to eliminate choice and require C 
corporation formation purely to generate revenue. C corporate form 
helps generate revenue because it is inherently a double tax, first at 
the entity then at the individual shareholder level. The Treasury 
Secretary said that this proposed change could subject up to $3 
trillion to new and additional income taxes.
  In this regard, the administration is proposing to raise taxes on 
America's small businesses: either by forcing them to reorganize as C 
corporations solely for tax reasons and be subjected to new and 
additional levies, or if the administration deigns to let them remain 
organized as flow-through entities, then they will be hit with massive 
increased taxes after 2012 when current tax rates expire--an impending 
tax increase of over $800 billion that job creators cannot afford.
  Individual income tax rates absolutely affect these businesses. The 
growth in the number of flow-through businesses is critical to 
understanding why the increase in individual rates is so damaging to 
small business job generation.
  When we talk about flow-through entities what we really mean are 
America's small businesses. A discussion of tax reform must not ignore 
the small businesses that make up the backbone of America. The 
administration continues to talk about corporate tax reform but it 
should be talking about business tax reform, which of necessity must 
include a real discussion of individual tax rates.
  Many of America's small businesses choose the flow-through option to 
avoid double taxation. Forcing them to convert to C corporate status is 
simply another way to increase their costs and raise their taxes. This 
would hurt job creation since 70 percent of our good American jobs are 
created by these businesses.
  I urge my colleagues to review my proposal and join me in telling 
those who would raise taxes on the millions of businesswomen and 
businessmen we are counting on to create the jobs we need to put the 
recession firmly behind us--no thank you.

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