TRADE FINANCE

President Obama today proposed eliminating corporate tax loopholes and using the money to cut the business tax rate to 28 percent from 35 percent. The tax code "is unnecessarily complicated and forces America's small businesses to spend countless hours and dollars filing their taxes," he said in a statement.

Strange, then, that a plan to simplify the business tax code and cut rates would spark a condemnation from small business groups. This chart tells you why:

The lower rate would only apply to companies organized as C corps, which pay corporate income taxes. They make up less than 6 percent of business tax returns, according to IRS data. (They account for closer to two-thirds of all business revenue and income.) For the rest of the business world, including partnerships, sole proprietors, S corps, and limited liability companies, their business earnings flow through to owners' personal income and are taxed at individual income tax rates.

Eliminating tax breaks without lowering individual income tax rates could effectively raise taxes on some small business owners, says Todd McCracken, president of the National Small Business Association, a Washington trade group. "The business deductions are relatively unified. A deduction's a deduction, whether you're a C corp or a sole proprietor, for the most part," he says.

McCracken likes some parts of the Obama proposal: A plan to make permanent deductions for capital investment (such as equipment and software) and research and development. (Yes, the tax reform supposedly eliminating deductions includes plans to expand deductions.) Still, he says, reforming the corporate tax code and letting the Bush tax cuts expire could leave non-corporate business owners facing a federal income tax rate of over 40 percent next year on earnings over $250,000.

The National Federation of Independent Businesses, a frequent foe of the Obama White House, panned the proposal, saying in a statement that "the focus should be on individual rate reform." Not every small biz lobby agrees. Small Business Majority, a group that generally supports Obama's policies, praised the plan and noted that "reforming the tax code will eliminate dozens of loopholes that consistently leave small businesses paying an unfair share of taxes."

McCracken says the plan is short on specifics but looks like a mixed bag. He favors reform that would tackle the individual tax code alongside corporate taxes. The chances of any major tax plan passing in Congress this year, he notes, are very slim. So even if corporate tax reform spells trouble for small businesses, they probably don't have to worry about it any time soon.

Entrepreneurs, tech executives, and venture capitalists have long complained that America's visa rules keep aspiring entrepreneurs who lack U.S. passports from starting companies in the U.S. Now immigration authorities are reviewing those rules to see if they can make them work better for entrepreneurs.

We're not talking about creating a startup visa or changing the number of people the U.S. lets into the country under various programs. No one expects this Congress to pass broader immigration reform. But U.S. Citizenship and Immigration Services says it wants to make sure its existing system is realistic for high-growth companies.

The agency is hosting an online summit today to discuss how immigration policy affects entrepreneurs. Then five business and academic leaders from the private sector will work with immigration authorities to review visa laws and make sure they "provide pathways that are clear, consistent, and aligned with business realities," Stephanie Ostapowich, a spokeswoman for the agency, said in an email. (The agency calls these "entrepreneurs in residence" and hasn't yet announced who they are.)

The current system hamstrings foreign-born entrepreneurs, says Vivek Wadhwa, a researcher at Duke University (among others) participating in the summit. "Silicon Valley is bleeding right now," he says, with high-skilled immigrants returning to start companies in China, India, Brazil, or other countries because of barriers to staying in America. (Wadhwa is an occasional columnist for Businessweek.com.)

For example, Wadhwa says the current rules prohibit startups from sponsoring visas for their founders. He also notes that immigration authorities sometimes consider companies with no revenue or those not selling physical goods fraudulent, even though early-stage tech companies often have neither.

Wadhwa says Alejandro Mayorkas, the director of Citizenship and Immigration Services, and other White House officials are hearing tech executives' calls for an immigration fix. "These people have spent time in Silicon Valley," he says. "Almost every CEO here has been ripping into them. They really get it now."

Photograph by Aron Sueveg / Anzenberger/Redux

Employers who rely on low-skilled workers from abroad have a new set of rules to digest. On Feb. 10, the Labor Dept. issued 575 pages of regulations for its H-2B visa program that U.S. employers use to bring foreign nationals to fill temporary non-agricultural jobs. H-2Bs generally allow for a maximum 10-month stay and are often used by small, seasonal businesses such as housing contractors, landscapers, and seafood processors. The application process, which involves filing paperwork with the Labor Dept. and Immigration authorities, has been growing steadily more complicated and time-consuming. Now it's even tougher.

Among the biggest changes in the new rules, which go into effect on April 23: They'll have to demonstrate to state agencies--not merely attest--that they weren't able to locate enough U.S. workers. They'll have to post the jobs in a national online registry administered by the Labor Dept. and start advertising in local publications about two weeks earlier than in the past. And they'll also be responsible for employees' travel costs to and from their home countries, provided the worker completes a certain number of days on the job.

The goal of the new rules is to respond to efforts by the Obama administration to increase employment. "The H-2B program is designed to help businesses when there is a temporary shortage of U.S. workers," Secretary of Labor Hilda L. Solis said in a statement. The changes "will ensure that the program is used as intended by making these jobs more accessible to U.S. workers and providing stronger protections for every worker."

Seventh-generation oysterman Mike Voison, chief executive officer of Motivatit Seafoods, an 85-employee seafood supplier and processor in Houma, La., says he'd prefer to hire locals, rather than foreigners. But since Hurricane Katrina, Voison has struggled to find Americans willing to do the low-wage work. (Pay at Motivatit starts around $8.50 an hour.). "You say there's an 8.5 percent unemployment rate in America," says Voison. "Look, I would love every one of those 8.5 percent to come work."

Voison is concerned that the new rules will "hurt American jobs." For every one of the 30 or so H-2B workers he employs, "there are about two American jobs that I feel are supported by that," says Voison. "I have a management team, I have truck drivers, I have people that make boxes, I have people that pack the product, I have American jobs in the plant besides those."

Voison has been contemplating building a facility in Mexico where "ample labor" exists. "That would be terrible--my community depends [on us]," he says, but the new rules "are just not going to work for bringing in foreign labor."

Photograph: Bloomberg

Small businesses have increased their share of exports in the two years since President Obama set a goal to double U.S. sales abroad by 2015, according to new federal data.

Companies with fewer than 500 employees accounted for 35 percent of exports in the third quarter of 2011, according to preliminary figures from the Census Bureau, up from about 32.8 percent in 2009. The figure, from a report set to be released in April, refers only to sales of goods, not services.

"Ninety-eight percent of U.S. exporters are small and medium-sized enterprises but these exporters have historically represented only 30 percent of U.S. export value," Tim Truman, a spokesman for the Commerce Department's International Trade Administration, said in an email.

The increase follows a two-year government effort to expand the reach of American companies by increasing trade financing and technical help to businesses that want to export.

Still, the results of those efforts are modest, says Laurel Delaney, president of GlobeTrade, a Chicago-based consultant to exporters. "It's like the needle isn't really moving much for the small business market," she says. Delaney says measuring service exports might show greater growth among small businesses because of the ease of doing business online. The government doesn't track service exports by company size.

One federal initiative that could help: loosening export controls, or restrictions on selling components of military technology that may have other commercial uses. "A U.S. company can't sell that particular part...even though it may be used on a conveyor belt in Germany," says Todd McCracken, president of the National Small Business Association, a Washington, D.C., trade group. "We think there's a lot of potential there to both increase exports and increase the competitiveness [of small business] in other countries."

The National Export Initiative aims to increase U.S. exports to $3.14 trillion in 2015, double the level of 2009. Last year, total exports (of goods and services) reached $1.9 trillion through November, up from $1.4 trillion in the same period in 2009. Obama said last week in the State of the Union that the U.S. was on track to meet that goal ahead of schedule. Full year data for 2011 will be released Feb. 10.

Photograph by Ken James/Bloomberg

It's no secret that the years since the financial crisis have been tough on small business. What's more surprising, though, is that their role in the U.S. economy had already been diminishing for years before the Great Recession. Small companies' contribution to America's total economic activity and job growth has dropped significantly in the last decade, according to a new paper from the Small Business Administration's Office of Advocacy.

Companies with fewer than 500 employees were long thought to make up half of private non-farm gross domestic product and create 65 percent of net new jobs, according to widely cited government research. In fact, their share of GDP dropped from 48 percent in 2002 to 46 percent in 2008, and probably weakened further in the next two years, according to a new analysis for the SBA by economist Kathryn Kobe.

And even though small businesses are widely hailed as job creators, over the last three quarters in 2010 they were responsible for just over half of net new jobs, the paper suggests, compared to two-thirds in earlier periods. Kobe cautions against drawing too many conclusions from such a short period, however. "During different parts of the business cycle, there's different things going on in small and large businesses," she said in an interview.

As the report notes, corporate profits (which are dominated by large businesses) rebounded faster than other business income (from sole proprietors, partnerships, etc.) after the 2001 recession, and we saw a similar pattern in this recovery. Construction is a big part of the reason. Small businesses employed 84 percent of construction workers in 2008. That industry took the biggest hit from the housing collapse and has been the slowest to recover.

In other industries, such as wholesale and retail trade and professional services, the small business share of GDP declined as the industries consolidated and small companies employed fewer workers than before. "It's a combination of how small businesses are doing within these sectors but also how important these sectors are to the overall economy," Kobe says.

Her analysis also uses new data to more precisely determine what counts as a small business. Starting in 2002, the paper counts large companies that are not incorporated (such as big law firms still organized as partnerships, or big LLCs) as large businesses. Before that, these were automatically counted as small companies (the data to discern larger entities wasn't available).

That change in methodology helped take two points out of small businesses' contribution to the economy, measured at 50.3 percent in 2001 and, with the new method, 48.3 percent in 2002. After that, however, the decline is fairly consistent. And though the numbers for the last two years in the paper were based on trends rather than complete data, Kobe's research suggests that by 2010 small business accounted for less than 44.6 percent of private non-farm GDP -- a meaningful drop from the start of the decade.