Small Business Tax Issues: Who in Washington is Listening To What?

The hearing of the House Committee on Small Business was held to discuss the biggest tax problems facing America’s 28 million small businesses. What did the panel of experts tell the committee at the hearing?

• Compliance is a challenge because of the tax code’s size and complexity.
• Constant changes in tax law and regulations are an administrative nightmare.
• On average it takes two full work weeks for a small business to prepare its taxes.
• Tax compliance cost per-employee range from $517 for firms with 500 employees or more to nearly $1,600 for firms with 20 employees or fewer.
• Seventy-three percent of small businesses say that federal taxes have a moderate to major impact on day-to-day business operations.
• Businesses with less than $1 million in revenue in 2009 bore almost two-thirds of the $66 billion in compliance costs, $91 million when businesses with less than $10 million in revenue are included.

There’s much more, but these help to identify the scope of the problem outlined at the April 9, 2014 hearing, which was titled, appropriately enough, “The Biggest Tax Problems for Small Businesses.” In addition to hearing the problems, ideas for tax reform were also presented. Here are just a few:

• A simplified cash method for accounting that “more clearly reflects the cash flow of a small business from which taxes would be paid.”
• Taxing businesses, regardless of size and legal form, at the same rate.
• Lowering corporate and individual tax rates along with business and individual deductions.
• An across-the-board cut in government spending coupled with eliminating all tax credits and deductions while at the same time substantially lowering income tax rates.

Don’t be surprised, but not everyone agrees with what ought to be done. For example, one witness, perhaps fearing that reform would lead to lower tax revenues, told the committee that small businesses actually receive many advantages from the present tax code and warned that to give further tax advantages in some areas could lead to higher taxes on other businesses.

Such conversations, debates, and hearings on this issue aren’t new. And you’ve probably noticed that in the face of all the identified problems with which small businesses are dealing, there isn’t a cascade of reform legislation pouring out of Washington.

We know that the wheels of government don’t just grind slowly; their rotation can be almost imperceptible. The bigger and more expansive the effort, the greater is the probability of putting it off to a future date or derailing it altogether.

There’s a possibility that something legislatively will be done in the taxes and small business arena after November’s elections and the seating of new members of Congress. Therefore, it’s good to know what the committee responsible for researching charged with small business issues - and holding listening to testimony on the biggest tax problems facing small businesses - is hearing.

The Small Business Committee’s report on its hearing can be found here.