Tax cuts for smaller companies

The Socialist Party's message in the parliamentary elections on September 25, 2021: Fourth offer to voters presented around Pentecost:

SOCIALIST TAX POLICY PART VI:TAX CUT FOR SMALLER COMPANIES

The taxation of companies and capital during the neoliberal era was changed so that it primarily served the wealthiest capital owners and large corporations. Corporate income taxes were lowered so owners could pay themselves more dividends, which in turn was taxed less with a reduction in capital gains tax. With the tax environment for holding companies, owners could then postpone tax payments indefinitely and ultimately avoid them. At the same time, taxation on wage payments was increased, but labor costs are generally a higher proportion of expenses for smaller companies than larger ones.

In the smallest companies, owners primarily seek secure employment and not having to work for others, being free from living under the supervision of others. The main goal of small business owners is primarily to be able to pay themselves decent wages and have secure employment. The tax changes of the neoliberal years therefore worked against the interests of owners of smaller companies, those who worked within their own companies. Owners of shares in larger companies who did not do regular work but let their wealth work for them and exploited those who did the work, they were rewarded with tax cuts.

The situation was further distorted to the disadvantage of small businesses by the fact that large corporations and holding companies could avoid tax payments in various ways, schemes organized by the accountants and lawyers of these companies. This distorted the competitive position of smaller companies; they paid proportionally higher taxes and were therefore in a worse position in competition than large corporations that had the means to find ways to evade taxes.

On top of this, the entire regulatory environment of the business sector is adapted to the needs and demands of larger companies, which easily met the extensive demands from the public sector. The heavy regulatory and oversight system of the public sector served larger companies as a defense against competition from smaller companies, which were less able to meet the demands of the public sector.

Interest groups for capital and business owners primarily advocate for the wealthiest capital owners and the very largest owners of the very largest companies. Voting power in the Confederation of Icelandic Enterprise and its subsidiaries, the Chamber of Commerce, and other such propaganda machines, is determined by the size and turnover of companies. Therefore, it is the most financially powerful entities that form the majority in these associations and completely control the direction. These machines are thus not a democratic platform for business owners but rather tools for the largest and strongest to adapt the operating environment to their needs.

These interest groups have had a formative influence in recent decades on the corporate tax environment and all the frameworks that the state sets for the business sector. This framework is as large corporations and their owners want it to be. And the framework is designed in such a way that it is difficult for small and medium-sized enterprises, weakening them so that they do not threaten larger companies and are easy prey for the larger ones if they desire their operations or market.

For these reasons, the development of the business sector during the neoliberal years has been characterized by enormous consolidation, where larger companies have either swallowed smaller ones or defeated them in unequal competition. Oligopoly of large corporations now characterizes almost all sectors of the economy; new entry is low, and smaller and medium-sized companies are weak. Which is a very serious matter, because innovation in the business sector and job creation are by far most prevalent among small and medium-sized enterprises. Larger companies reduce jobs, acquire smaller companies, and merge operations into existing ones; primarily with the aim of reducing jobs and thereby cutting labor costs, which increases profits and thus dividend payments to shareholders.

Consolidation in the business sector during the neoliberal years is a problem that the state should combat. A business sector based on diverse and different companies is more resilient to shocks, promotes innovation, and better serves employees, customers, and the public. The tax policy should therefore encourage small businesses and tax companies according to size, promote the hiring of staff and the establishment of small businesses and cooperative enterprises, and plug loopholes that large corporations have used to reduce tax payments.

VI. Tax cuts for small businesses: Tiered income tax and facility fees

The size of companies in the market is a position that should be taxed separately. In sectors where there are two to four companies in an oligopoly, their benefit from this position is obvious; by virtue of their size, the companies dominate the respective market and exploit it. Market position is thus equivalent to an asset or benefit that it is natural to tax.

In the chapter on company facility fees to municipalities, it was proposed that these fees be tiered so that the smallest companies paid nothing, medium-sized companies paid something, and the very largest paid the most. The same system can be applied to corporate income tax, both to ensure fairness and to counteract the permanent dominant position of companies that manage to seize the market and achieve a superior position in competition with other companies.

VI. Tax cuts for small businesses: Reduction of social security contributions for the first employees

Social security contribution is a payroll tax that is effectively a tax on employees. The fee weighs more heavily on small and medium-sized companies, as labor costs are generally a proportionally larger part of their expenses than for large corporations. To encourage job creation, it is sensible to significantly reduce social security contributions for the first employees of each company, as most new jobs are created in small companies. Such a measure would effectively be an innovation contribution to small businesses and an incentive for individuals to establish their own companies.

VI. Tax cuts for small businesses: Encouraging the establishment of cooperative enterprises

It strengthens the business sector and increases its resilience to increase the number of cooperative enterprises owned by employees or the public. Cooperative enterprises with social objectives strengthen communities and ensure employment. And since they are non-profit, they leave more value in the community than profit-driven private companies.

Employee-owned cooperative enterprises increase democracy in the business sector and are a channel for innovation in company management, employee rights, and the work environment. And since such companies are inherently similar to small businesses, where the owners themselves do the work, it is right that cooperative enterprises benefit from the tax environment of small businesses.

VI. Tax cuts for small businesses: Stronger tax supervision

A strong tax investigation department needs to be built up that can oversee large corporations and the wealthiest capital owners. Effective oversight is a prerequisite for the tax system to be fair, and fairness is a prerequisite for the public to perceive that the tax system serves society.

But justice also needs to extend to smaller entities. Misuse of private limited companies, where personal consumption is registered as business expenses, must be combated. Such practices cause discrimination between citizens and an unequal position regarding taxation. There should be no tax difference between those who operate under their own ID number and those who operate through a private limited company. The number of private limited companies in Iceland is abnormal, one of the consequences of changes to the tax system during the neoliberal years where the tax burden was eased for companies and shifted to individuals.

A cleanup of the tax system and increased tax supervision should become a national effort that the public monitors and participates in. Objectives should be clear and performance measurement public. The public should be able to monitor how their tax payments decrease as better results are achieved in preventing tax evasion and tax avoidance.

VI. Tax cuts for small businesses: Simpler regulations and oversight

All regulatory bodies of the state must be adapted to smaller companies so that the smallest companies can withstand the oversight. The cost of oversight must be covered by general corporate taxation, not by charging each company a fee or by shifting the cost to them in the form of labor. Large companies can easily handle this cost, but smaller companies less so. Oversight must therefore not become a barrier to entry for small companies into the market and a competitive defense for larger companies. And the burden of oversight for smaller companies must not become a justification for abandoning oversight of large corporations.

In the same way that companies distribute the cost of oversight, company funds can be established to distribute the burden of various employee rights, such as parental leave, sick pay, and other such costs, which can have a significant temporary impact on the smallest workplaces.

VI. Tax cuts for small businesses: The Socialists' offer

The Socialists' fourth offer to voters for the autumn elections regarding tax cuts for small businesses consists of taxing companies by size, encouraging the establishment of small businesses and cooperative enterprises, simplifying the operating environment for small businesses, plugging loopholes in the tax system used by larger companies, and significantly reducing social security contributions for initial hires.

The aim of this offer is to eliminate the competitive advantage of large corporations and protect smaller companies from their encroachment. It is important for the business sector to have resilience, and this can be built up by strengthening small businesses and increasing the number of cooperative enterprises.

This is the last part of the Socialists' offer on tax matters. The first dealt with tax increases for the wealthy, the next with stricter tax supervision, the third with the utilization of resources for the benefit of society, the fourth with the restoration of municipal revenue systems, the fifth with tax cuts for the public, and finally this last one with tax cuts for small businesses.

Approved at a joint meeting of the executive and policy committees of the Socialist Party of Iceland on Saturday, May 12, 2021