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Stalled Start-ups: Small Businesses Sound Off on Tax Reform

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Washington, February 15, 2017 | comments

WASHINGTON – Small business owners told the House Small Business Committee today that provisions in the current tax code which penalize saving and risk-taking represent the biggest barrier to American entrepreneurship. The hearing comes as lawmakers work towards a comprehensive tax reform package using the House GOP’s Better Way for Tax Reform as a blueprint.

“In the coming weeks and months, Congress will have a once-in-a-generation opportunity to pass comprehensive tax reform, the likes of which we have not seen since Ronald Reagan’s historic tax reforms in the 1980s,” House Small Business Committee Chairman Steve Chabot (R-OH) said. 

“Entrepreneurs simply aren’t taking the kinds of risks they once did and this will have serious economic consequences, both in the short-term and in the long-term,” explained Chairman Chabot. “America’s entrepreneurs are crying out for tax relief, and we are listening to them as we take action. They want a tax code that is simpler, fairer and flatter so they can start and grow their businesses and turn their dreams into reality.”

“The bottom line is that our current tax system is working against entrepreneurs when it should be working for them. We have to do better. And fortunately, with the Better Way agenda as our roadmap, we will do better,” observed Chabot.

One Ohio Small Businessman Shares His Story

“My company is a Subchapter S firm,” explained Tim Reynolds, the President of Tribute Inc., a small business with 38 employees based in Hudson, OH. “As such, the income of my company flows to my personal tax return. I have an MBA from the University of Michigan, run a company that develops and sells accounting software and have been in business for more than 20 years. Yet, I would view it as taking an irresponsible risk to attempt to do my own tax returns. The Code is so complicated that I feel certain I would inadvertently run afoul of the law. So I have to pay an accounting firm to do these taxes. No doubt the CEO of a Fortune 500 company feels the same way. But as a small business person, the cost of compliance is disproportionately large.”

Tax Code Costs Him “More than $14,000 and 40 Hours A Year”

“The majority of small businesses, 68 percent, spend more than $1,000 per year on the administration alone on federal taxes,” said Reynolds, who testified on behalf of the National Small Business Association (NSBA).  “More than half say that federal taxes have a significant to moderate impact on the day-to-day operation of their business. Just imagine the collective business and job growth that could be done absent that burden. My company pays our accountants more than $14,000 each year to prepare our taxes. In addition, we spend about 40 hours a year preparing various forms and making various estimated payments required to comply with tax law.”

“Weighing in at more than 70,000 pages, the Tax Code punishes work, investment, risk-taking and entrepreneurship. The Tax Code is unfair to small businesses, biased against savings and investment, and impossibly complex. A tax system dedicated to investment, savings and small business growth must be put in its place,” Reynolds added.

Experts Agree: Tax Code Hindering Entrepreneurship

“The U.S. tax code tends to impose higher burdens on businesses that run losses for many years, businesses that are risky investments, and businesses undergoing rapid expansion – all of which are typical characteristics of entrepreneurial ventures,” testified Kyle Pomerleau, the Director of Federal Projects for the non-partisan Tax Foundation. “Lawmakers interested in removing these barriers to entrepreneurship should consider ways to mitigate these three distortions in the U.S. tax code: the limited deductibility of business net operating losses, the limited deductibility of capital losses, and lengthy depreciation schedules.”

David Burton, a Senior Fellow for Economic Policy at the Heritage Foundation’s Institute for Economic Freedom and Opportunity, identified what he sees as the primary impediments to economic growth in the tax code.

“The current U.S. tax system has a very substantial negative impact on the economy,” Burton explained in his testimony.  “It has high marginal tax rates that reduce the incentive to work, save and invest. The U.S., for example, has the highest corporate tax rate in the industrialized world. It substantially raises the cost of capital by double, triple or even quadruple taxing savings and investment.”

“It places U.S. businesses and at a competitive disadvantage in international markets. It is riddled with special tax preferences. And it imposes large compliance costs on U.S. businesses, which has a disproportionately negative impact on small firms,” Burton stated.

You can view full video of today’s hearing HERE and read full witness testimony HERE

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