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My good friend, John Giagiari, recently sent me a great article from Inc.com. The article is a compilation of 100 great questions every entrepreneur should ask. Asking questions can provide an opportunity to ignite imagination, avert catastrophes, or even reveal alternative routes that will lead to better solutions.
Over the next few weeks I’ll be sharing the questions addressed in this article with you 10 at a time.
Members of the House Small Business Committee April 9 made a case to the House Armed Services Committee for using the annual defense authorization bill to increase small firms' access to federal contracting programs.
Small Business Committee Chairman Sam Graves (R-Mo.) was joined by Reps. Richard Hanna (R-N.Y.) and Mike Coffman (R-Colo.) in asking that several recently reported bills be included in the fiscal year 2015 National Defense Authorization Act.
They also asked for room in the defense bill for changes to the Comprehensive Subcontracting Test Program (CSP) if agreement can be reached on legislative improvements to better gauge the status of small business subcontractors.
The Small Business Committee-passed bills that were pitched to the HASC are the:
• Greater Opportunities for Small Business Act (H.R. 4093), which would increase the small business prime contracting goal from 23 percent to 25 percent and small business subcontracting goal from 36 percent to 40 percent;
• Commonsense Construction Contracting Act (H.R. 2751), sponsored Hanna, to prohibit use of reverse auctions when a construction services contract is suitable for award to small businesses, or when the procurement is made using a small business program;
• Improving Opportunities for Service-Disabled Veteran-Owned Small Businesses Act (H.R. 2882), sponsored by Coffman, to transfer responsibility for verifying the status of service-disabled veteran-owned small businesses from the Department of Veterans Affairs to the Small Business Administration;
• Security in Bonding Act (H.R. 776), also sponsored by Hanna, to increase access of small construction companies to surety bonds; and
• Women's Procurement Program Equalization Act (H.R. 2452), sponsored by ranking member Nydia Velazquez (D-N.Y.), to standardize sole-source authorities among the SBA's procurement programs in order to promote parity.
The bills were approved with bipartisan support and reported out of committee March 5.
The HASC is scheduled to mark up the defense authorization bill May 7.
Combatting Fraud in Contracting Programs
In a related development, Maria Contreras-Sweet, the new SBA administrator, spent part of her second day on the job testifying before the Senate Small Business and Entrepreneurship Committee on the FY 2015 agency budget request.
Contreras-Sweet said she is committed to fighting fraud and abuse in small business contracting programs, particularly size misrepresentation schemes to fraudulently win government work reserved for small firms.
Since 2008, the SBA has suspended and debarred more companies and individuals for abusing SBA programs than in the previous 10 years combined, she said. “Under my leadership, we will have a zero-tolerance policy for these types of abuses.”
Procurement fraud allowing large firms to obtain small business awards is among the significant challenges facing the SBA, Peggy Gustafson, the agency inspector general, told the committee. Gustafson said her office had 88 open government contracting cases, with potential losses of over $2 billion based on the dollar value of the contracts, pending at the end of FY 2013.
The FY 2015 IG budget request will allow the office to continue investigating abuse of SBA contracting assistance programs and join qui tam False Claims Act lawsuits filed by private sector parties alleging fraud in those programs, she said.
The SBA's proposed fiscal year 2015 budget is close to $865 million.
Key Development: Small businesses report that the time and money spent complying with the tax code drags down their bottom line.
Next Steps: Congress works on a tax code overhaul, while a separate bill to renew certain tax breaks advances.
April 9 (BNA) -- A majority of small businesses surveyed recently said that the complexity of the tax code, not the amount of taxes they pay, poses their most significant challenge, according to a study conducted by the National Small Business Association.
More than half of businesses surveyed said they spend more than 40 hours per year dealing with federal taxes. Forty percent reported spending more than 80 hours, or two full work weeks, and more than a quarter of respondents said they spend more than $10,000 a year on accountants or other administrative costs of tax compliance.
In addition, the percentage of small businesses that said they hire a tax professional to prepare their returns ticked up to 86 percent in 2014, up from 84 percent a year earlier. Just 12 percent reported that they handle taxes internally, compared to 15 percent in 2013, the NSBA said.
The survey comes as Congress continues work on legislation to lower tax rates while broadening its base. Many business groups and lawmakers also say the effort should include a simplification of the tax code as well. The House Committee on Small Business held a hearing April 9 on the most pressing tax problems for small businesses.
“Small business owners consistently tell us that they are impacted by higher taxes, new taxes, increasing tax code complexity, uncertainty, and the additional time required to resolve issues with the Internal Revenue Service,” Committee Chairman Sam Graves (R-Mo.) said during his opening statement at the hearing. “All of this means they have little ability to plan with confidence, and less time to grow their companies.”
As a practical matter, the number of businesses filing taxes electronically appears from the survey to be climbing sharply. A total of 3 percent said in 2013 that they filed electronically, and that grew to 23 percent—nearly one in four—in 2014, the study added.
Among tax deductions, the survey revealed that businesses mostly claim tax code Section 179 expensing, the home mortgage interest deduction, the home office deduction and bonus depreciation. Sixty-two percent said the deduction most helpful to stimulating small business growth would be a full deduction for health insurance for the self-employed.
Similar Story in Hearing
In the Small Business Committee hearing, David Kautter, managing director of the Kogod Tax Center at American University, said the two biggest tax challenges facing small businesses are the complexity and the constantly changing nature of the tax code.
“Constantly changing tax law means constantly changing tax filing requirements, which means constantly changing record keeping requirements, which means constantly growing uncertainty, inefficiency and frustration” Kautter said.
Kautter's answer is twofold: a simplified cash method of accounting and a unified tax rate schedule for all businesses.
Under Kautter's simplified cash method of accounting, the derivation of taxable income would be based only on cash actually received or paid during the tax year for businesses with less that $10 million in gross receipts.
Additionally, Kautter suggested that income from all businesses, no matter the type or size, be taxed at the same rates. Currently, businesses organized as sole proprietorship, S corporations and partnerships are taxed at a maximum rate of 39.6 percent, and C corporations are taxed at a maximum individual rate of 35 percent.
Kautter said that it made little sense that the tax rate for unincorporated businesses, which are often small business, are taxed at a higher rate than large C corporations.
Kautter added that he was open to the idea of a graduated tax rate schedule, though one that spanned all types of businesses.
Committee Ranking Member Nydia Velazquez (D-N.Y.) asked the witnesses whether they would support a corporate tax overhaul alone, without touching the individual side, if that were the only option.
Tim Reynolds, president of Tribute Inc. of Hudson, Ohio, an S corporation, said that rewriting only the corporate portion of the tax code would put his small software company at a disadvantage compared to large C corporations.
“If you do just C-corporation reform, what happens then is the companies such as mine lose the many tax incentives that would be struck during that reform, but then ends up not benefiting from the lower rates,” said Reynolds, who is also vice-chairman of the NSBA.
Additionally, Reynolds said many of the dozens of tax breaks that expired at the end of 2013, collectively known as extenders, are critical to many small businesses' bottom line. Some 73 percent of NSBA members use one or more of the extenders, Reynolds said.
Work on renewing extenders continues in Congress, with a floor vote on the Senate floor coming soon (68 DTR G-3, 4/9/14).
Reynolds noted what he called the uncertainty over the expired Section 179 tax extender, which lets business expense the cost of certain acquisitions upfront instead of depreciating over time. It is one of the more popular provisions for small businesses, according to the NSBA study.
More than one in three NSBA members take advantage of Section 179, but relying on the expensing provision can be difficult, Reynolds said.
“The annual termination, change in limits and delay in extensions of this and other tax extenders disrupts this planning, interferes with business efficiency improvements and harms the economy both for buyers and sellers of capital goods,” Reynolds said.
Winslow Sargeant, Ph.D., Chief Counsel for Advocacy, U.S. Small Business Administration, testified before the U.S. Senate Committee on Small Business and Entrepreneurship on the Office of Advocacy Fiscal Year 2015 Budget
The House Education and the Workforce Committee, chaired by Rep. John Kline (R-MN), today approved two pieces of legislation to roll back an attempt by the National Labor Relations Board to weaken workforce democracy and employee privacy. The Workforce Democracy and Fairness Act (H.R. 4320) and the Employee Privacy Protection Act (H.R. 4321) will ensure access to a fair union election process and empower workers to safeguard their personal privacy.
“I am pleased the committee has advanced legislation to defend the rights workers and employers have enjoyed for decades,” said Chairman Kline. “The Obama board is determined to advance a radical rule that will stifle employer free speech, cripple employee free choice, and jeopardize the privacy of workers and their families. It’s unconscionable for Congress to sit on the sidelines and do nothing. The steps we’ve taken will ensure a fair union election process, one that allows employers to speak with employees, protects a worker’s right to make an informed decision, and safeguards the privacy of working families.”
“Today the committee acted not only to push back broadly against the NLRB’s ambush election rule,” said Rep. Phil Roe (R-TN), chairman of the Subcommittee on Health, Employment, Labor, and Pensions, “but also to protect the privacy of American workers. Employees have the right to form a union, but the unionization process must be open, transparent, and fair. Every worker deserves to make his or her own decision about whether to join a union, free from intimidation or coercion—by the union or the employer.”
During the markup, Democrats offered several non-germane amendments in an attempt to distract from the NLRB’s ambush election proposal and the president’s failed policies. “Working families are hurting in the Obama economy,” said Chairman Kline. “Rather than work with us to change direction, Democrats are trying frantically to change the subject. Today’s antics are further proof that Democrats have different priorities than working families. More rules, mandates, and regulations will not provide the jobs and opportunity struggling families desperately need.”
BACKGROUND: In February the NLRB proposed sweeping changes to long-standing labor policies in an attempt to speed up union elections. Under the board’s proposal, union elections could occur in as few as 10 days, providing employers no time to communicate with their employees and undermining the ability of workers to make an informed decision, and worker privacy will be compromised. The legislation approved by the committee will:
• Guarantee workers have time to gather all the facts to make a fully-informed decision in a union election. No union election will be held in less than 35 days.
• Ensure employers are able to participate in a fair union election process. The bill provides employers at least 14 days to prepare their case to present before a NLRB election officer.
• Reassert the board’s responsibility to address critical issues before a union is allowed to represent workers, such as questions concerning voter eligibility or allegations of misconduct during the election.
• Empower workers to control the disclosure of their personal information. Employers would have seven days to provide a list of employee names and one additional piece of contact information chosen by each individual employee.
• Rein in union red tape and protect employee freedom in the workplace. Offered by Rep. Tom Price (R-GA) as a response to the board’s Specialty Healthcare decision, an amendment to H.R. 4320 was passed that would restore the traditional standard for determining the unit of workers to be included in the union.
To learn more about the Workforce Democracy Fairness Act, click here. To learn more about the Employee Privacy Protection Act, click here. To access markup materials or view an archived webcast, click here.
# # #
The April 2014 issue of The Small Business Advocate features a visit by Chief Counsel for Advocacy Dr.
In addition, a new National Small Business Association (NSBA) tax survey was released in conjunction with the testimony of NSBA member Tim Reynolds, a small business executive. The survey shows that a majority of small businesses spend 40 hours preparing to file their taxes, while 40 percent spend a costly two full workweeks on the process. These small businesses say tax complexity and compliance are factors in their day-to-day operation all year long.
The growing number of tax provisions means that small business owners must spend significant resources on compliance that could otherwise be spent growing their companies. Tax complexity is a big problem for small businesses: according to the Internal Revenue Service’s own National Taxpayer Advocate, there were over 500 changes to the tax code in 2010 alone, an average of more than one per day. And high tax rates mean small firms have less capital to invest back into hiring or expanding.
“Tax season is tough on small businesses,” said Chairman Graves. “Taxes are getting more complicated every year, and compliance is a huge drain on their resources. Jobs remain scarce, and the heavy burden of tax compliance is another obstacle to growth. This new NSBA survey of small businesses emphasizes that the complex tax code is not just a problem for Tax Day, but throughout the year. I appreciated the testimony of experienced small business representatives at today’s hearing, and their insights on the concerns of America’s 28 million small business owners.”
Materials from the hearing are available on the Committee’s website HERE.
David Kautter, Managing Director, Kogod Tax Center, Kogod School of Business, American University, Washington, DC, said, “The National Taxpayer Advocate has found that the single most pressing problem encountered by taxpayers, including small businesses, is the complexity of the Internal Revenue Code. The National Taxpayer Advocate estimates that each year small businesses spend approximately 2.5 billion hours complying with tax filing requirements, the equivalent of 1.25 million full-time jobs. According to the National Taxpayer Advocate, more than 70% of all unincorporated businesses (which tend to be small businesses) use paid tax return preparers and spend more than $16 billion for professional advice and compliance assistance from attorneys, accountants and enrolled agents.”
Tim Reynolds, President, Tribute, Inc., Hudson, OH, said, “Approximately 42 percent of NSBA members have fewer than five employees—few, if any of whom is a tax specialist—leaving business owners with no other choice but to hire outside help to keep track of all their additional reporting and filing requirements. In fact, according to the NSBA Small Business Taxation Survey, only 12 percent of small-business owners handle their taxes internally—meaning 86 percent are forced to pay an external accountant or practitioner—this data should send a strong message to the IRS and Congress that the tax code is far too complex.”
Rick Endres, President, The Washington Network, Inc., Alexandria, VA, said, “While I would consider my company to be a true example of a successful small business entrepreneur, I also consider myself to be the prototypical victim of an uneven tax code that is filled with uncertainty, vagueness and unintended consequences for me and other small IT companies. The complexity of the tax code has had a negative impact on both my business growth and my hiring capabilities.”
Donald Marron, Institute Fellow and Director of Economic Policy Initiatives, The Urban Institute, Washington, DC, said, “America’s tax system is needlessly complex, economically harmful, and often unfair. Despite recent revenue gains, it likely will not raise enough money to pay the government’s future bills. The time is thus ripe for wholesale tax reform. Such reform could have far-reaching effects in the economy, including on small businesses.”###
During the hearing, Graves testified, “Recognizing that this is a crucial area for small businesses, over the past three years, the Armed Services Committee and the Small Business Committee have worked together to reduce barriers to entry, create guidance that allows small businesses to compete and facilitates the Department of Defense (DoD) meeting the needs of the warfighter, and ensure that we have a strong small business industrial base.
“…I am here today to support the inclusion of six small business contracting bills in this year’s National Defense Authorization Act.”
Hanna testified, “…there are a few areas where the federal government’s policy on construction contracting hurts small businesses, taxpayers, and the agencies themselves. This is particularly important given the scope of federal construction contracting. Construction and architect & engineering (or, A&E) contracting represent about 1 in every 6 prime contract dollars awarded to small businesses. That was over $17 billion in prime contracts in fiscal year 2012. Therefore, as the Chairman of the Subcommittee on Contracting and the Workforce of the Small Business Committee, I’ve introduced two bills this Congress, and cosponsored a third bill, intended to bring some commonsense reform to this arena.”
Members Requested The Following Legislation Be Included:
1. Greater Opportunities for Small Business Act of 2014 (H.R. 4093) Sponsor: Graves
2. Design Build Efficiency and Jobs Act of 2013 (H.R. 2750) Sponsor: Graves
3. Commonsense Construction Contracting Act of 2013 (H.R. 2751) Sponsor: Hanna
4. Security in Bonding Act (H.R. 776) Sponsor: Hanna
5. Contracting Data and Bundling Accountability Act (H.R. 4094) Sponsor: Graves
6. Improving Opportunities for Service-Disabled Veteran-Owned Small Businesses Act of 2013 (H.R. 2882) Sponsor: Coffman
During the112th Congress and 113th Congress, the Committee has been successful in including its small business legislation in the final NDAAs that were signed into law. The NDAA of 2013 and 2014 incorporated several Committee-sponsored contracting provisions, including making small business procurement goals part of senior agency employee reviews and bonus discussions, preventing contracting fraud by penalizing companies that front for large businesses, and changing limitations on subcontracting to make it easier for small companies to team on larger contracts.
CLICK HERE to watch the video of Graves, Coffman and Hanna during the hearing.###
Before I highlight the technical change included in the amendment, I’d like to help set the record straight and review briefly the specific policies embodied in the legislation. Despite what our Democratic colleagues may suggest, the legislation largely codifies a union election process that has worked well for decades.
Not too long ago, former acting general counsel Lafe Solomon described the NLRB’s ability to process elections as “outstanding” and an example of “excellent casehandling performance.” Our goal is to take the regulatory framework that helped create this outstanding record and make it part of the law, which is the best way to prevent an activist board from upending effective policies through bureaucratic fiat.
For example, H.R. 4320 ensures employers can participate in a fair election process. The legislation stipulates that no election hearing can begin in fewer than 14 days from the time an election petition is filed, providing all parties the opportunity to identify their concerns and prepare their case. The legislation also allows parties – employers and unions – to raise relevant and material issues throughout the pre-election hearing.
I would like to note this 14-day period is merely a minimum amount of time. A regional director could provide more time if he or she thinks it is helpful or necessary. A key aspect of the current process is the discretion afforded regional offices in handling election cases, which helps provide time to foster comprise and agreement. Witnesses at previous hearings testified that the board’s proposed rule would encourage the exact opposite. By setting arbitrary deadlines, limiting concerns that can be raised during the pre-election hearing, and restricting regional office discretion, the board will actually invite more confrontation and prolong the process – something I am confident no one wants to see.
The Workforce Democracy and Fairness Act also reasserts the board’s responsibility to address outstanding issues before a union can begin representing workers. While many of us have broader concerns with the priorities of the Obama board, it still has a job to do. In their haste to rush union elections, the board would take itself out of the process almost entirely by refusing to review issues left unresolved before and after the election. Yet many of the issues it should address can alter the outcome of the election, such as questions surrounding voter eligibility or misconduct that may take place while workers are voting. H.R. 4320 requires the board to fulfill its responsibilities once the ballots are cast and before the union bargains on behalf of workers.
Finally, the legislation ensures workers have the time necessary to make a fully-informed decision. No election can be held in fewer than 35 days from the date an election is ordered. According to the most recent data, the median amount of time is now 38 days, placing the bill well in line with current practice. President John F. Kennedy once argued for a waiting period to “safeguard against rushing employees into an election where they are unfamiliar with the issues.” Republicans whole-heartedly agree, and believe 35 days is ample time for employees to learn the facts and make an informed decision.
Aside from these broader provisions, the amendment in the nature of a substitute contains a technical change to clarify that the legislation applies to all petitions for an election, regardless of the petitioner. By incorporating these changes into the amendment, we’ve ensured the underlying bill will effectively safeguard employer free speech and worker free choice. I urge my colleagues to support the amendment and the underlying bill.
# # #
Today the committee will consider H.R. 4321, the Employee Privacy Protection Act and H.R. 4320, the Workforce Democracy and Fairness Act. Together these proposals provide an appropriate congressional response to the National Labor Relations Board’s proposed ambush election rule.
I had hoped today’s meeting would not be necessary. Over the last several weeks this committee has tried to engage in a good faith effort to address concerns about the board’s proposed ambush election rule, specifically the rule’s effect on the rights of workers and job creators.
Under the board’s proposal, the right of employers to communicate with their employees will be severely restricted. Congress decided long ago it was in workers’ best interest to hear the views of both unions and employers during an organizing campaign, yet the board’s proposal takes a fundamentally different approach. An election could be held in as few as 10 days, providing employers little time to respond to a host of complicated legal questions and practically no time to speak to their employees. As a result, employers will be silenced and debate will be stifled.
We heard a great deal during a recent oversight hearing about the influence outside voices can have on union elections. Our Democratic colleagues showed us a number of headlines from Tennessee. Here is one headline they didn’t discuss: “VW labor leader links SUV with works council.” Citing Volkswagen’s German labor chief, the Chattanooga Times Free Press reported that a “works council labor board at the Chattanooga factory is important if the plant wants to produce other VW vehicles.” Reuters reports the same union boss has “threatened” to block additional investments in the southern United States if “workers there are not unionized.”
Are these comments an attempt by a union leader to “ambush” workers? Well, that’s not for us to decide today. But these comments illustrate that the debate over unionization is often spirited if not divisive. A vigorous debate can often get messy, but it still provides workers an opportunity to gather all the facts and make a fully-informed decision before casting their ballots.
That is why workers will be most harmed by the board’s proposed rule. Deciding whether to join a union is not a simple decision. The outcome of an election can affect workers’ future wages, health care, retirement benefits, work hours, and other employment conditions. Voters in federal elections have months to hear from all the candidates before deciding who will represent them in Washington. Don’t American workers deserve more than 10 days to decide whether they want a union negotiating over matters critical to their families’ well being?
Several weeks ago Representative Roe and I met with Chairman Pearce to raise these concerns and seek answers to some straightforward questions. For example, did the board consider soliciting public input before releasing its proposed rule?
Does the board seek to diminish employers’ due process rights by ignoring legal concerns that are not identified during an arbitrary seven-day window?
Is the board worried that providing personal information to union organizers will jeopardize the privacy of employees and their families?
And does the board honestly believe 10 days is enough time for workers to gather the facts, speak with friends, coworkers, and loved ones, and make an informed decision?
Unfortunately, Chairman Pearce failed to provide adequate responses to these and other important questions. We also asked the board to provide the public 30 additional days to comment on the proposed rule, yet even this reasonable, routine request was rejected.
We are left with only one conclusion: The board is utterly determined to jam through the regulatory process a flawed scheme that will stifle employer free speech and cripple worker free choice. Congress cannot sit idly by and let that happen. As lawmakers and the people’s elected representatives, we have a responsibility to act.
The Employee Privacy Protection Act and the Workforce Democracy and Fairness Act provide a responsible, commonsense response to the board’s radical ambush election rule. The legislation codifies, and in some ways strengthens, labor policies enjoyed for decades by workers, employers, and unions. The proposals will help ensure employers can continue to participate in a fair election process and workers have the time necessary to make an informed decision, as well as empower workers to protect their personal privacy. I urge my colleagues to support the legislation.
# # #
Thank you, Chairman Kline, and thank you for convening today’s markup of H.R. 4321, the Employee Privacy Protection Act. In just a few moments I will address the technical change included in the substitute amendment. Before I do, I think it’s important to outline why this commonsense legislation is necessary.
I understand some are so wedded to the board’s destructive ambush election rule that they refuse to consider any alternative. That’s unfortunate, because H.R. 4321 will help modernize the union election process in a way that doesn’t pose additional privacy risks to workers and their families.
Under current election procedures, employers have seven days from the date an election is ordered to provide the National Labor Relations Board a list of names and home addresses for all employees eligible to vote in the election. This process has been around for decades, long before email and smartphones were available in virtually every household. It is woefully outdated and should be brought into the 21st century.
But more importantly, the current process is dangerous. The safety and well-being of our families is one of our greatest concerns. No doubt many of us have been shocked and annoyed to hear a knock at the door during dinner time or after the kids have gone to bed. Standing on the other side of the door could be a campaign worker trying to get out the vote or a local home improvement company trying to drum up business. Regardless of who it is, we all want to ensure our families are safe.
Unfortunately, some workers have lost that sense of security. Press reports continue to highlight cases where labor leaders have taken extreme measures to enforce solidarity with the union. In 2012, SEIU tried to organize human service workers at a nonprofit operating group homes in the northeast. According to the Cape Cod Times, the union was accused of “intimidating and misleading employees on the job and tracking them down at home.” A union in Missouri was accused of using aggressive tactics against employees of a local construction company. The company’s owner said the union “started making threats of bodily harm, started following me and my wife to our home, started following my employees to their homes.”
These are two examples, but even one example is too many. Republicans agree the current process can be modernized. However, the board’s approach would move our country in the wrong direction, exposing workers to more acts of intimidation, coercion, and even violence. And remarkably, the board would force employers to be complicit in this type of extreme and unlawful behavior.
Under the board’s ambush election rule, employers would have just two days to provide union organizers with employees’ names, home addresses, telephone numbers, email addresses, and work schedules. This would ensure unions can contact employees not just at home, but at work, on the way to the store, leaving church, or picking up the kids from soccer practice.
Working families deserve better than this. Are all unions out to threaten workers? Of course not. Is protecting workers from union intimidation a valid concern? Absolutely. The Employee Privacy Protection Act doesn’t stop unions from reaching out to workers; it simply says it’s up to each individual worker to decide how the union contacts him or her. Under the legislation, employers would have seven days to provide a list of employee names and one additional piece of contact information chosen by the employee. The amendment in the nature of a substitute includes a technical change to clarify only one piece of information is required.
Let’s empower workers to control their personal privacy during union organizing campaigns by supporting the amendment and the underlying bill. I yield back the balance of my time.
# # #
The Tax Burden For Small Business Is Getting Worse
By Chairman Sam Graves
This time of year is dreaded by small businesses – a time when many companies and individuals are finalizing their tax returns. Today, the Small Business Committee will hold a hearing that will examine the many tax challenges for small businesses. The Committee will explore tax complexity and the high tax burden on small companies, and how they are dealing with these concerns in a tough economy.
Today’s tax code drains precious resources that could be used to grow these companies and create jobs. Unfortunately, the burden on small businesses has actually grown over the last few years.
Because of the “fiscal cliff” deal in January of 2013, when President Obama called for higher taxes, rates are higher for individuals at higher income levels. This translates to higher taxes for many small companies, because a majority of them file their taxes as individuals. The deal also raised taxes on capital gains and the estate tax.
According to the National Federation of Independent Business, 75 percent of businesses are pass-through entities subject to individual income tax rates. These businesses aren’t subject to corporate tax rates but they are subject to individual rates, and the 2013 tax increases created new hardships. The burden of higher rates is compounded by Obamacare, as many small businesses are paying and preparing for new taxes, such as the health insurance tax, the employer mandate tax, the medical device tax, the Medicare tax on investment income, and many others.
One Indiana small business owner, Juanita Melton, commented through Small Business Committee’s interactive website, Small Biz Open Mic, that “…the new ACA will place an undue burden on us as the 3 new "taxes", [Patient-Centered Outcomes Research] ($1 per life), Reinsurance ($65 per life), and HITS (a share of $8 billion dollars in the first year), are levied against us by the insurance carriers. We cannot continue to absorb the increased costs and therefore, will be forced to pass these additional taxes through to our employees increasing the amount they must pay for insurance. What happened to ‘there will be no new taxes and no additional cost’ to implementing the ACA?’”
This growing burden for small companies is a big deal, because it increases the challenges of compliance and reduces the capital needed to grow a business. Small companies create the majority of new jobs in America, so as these businesses face increasing challenges, the economy continues to lag.
Complexity is a burden that shouldn’t be overlooked. According to a new National Small Business Association (NSBA) survey, being released today, tax code complexity remains a significant challenge to small business, with the majority saying they spend more than 40 hours per year dealing with federal taxes. Forty percent report spending in excess of 80 hours – two full work weeks – per year on federal taxes.
Austin, Texas small business owner Ron Gates told us last month through Small Biz Open Mic, “Too many laws and regulations for a small business to manage, particularly the insane federal tax code, causes a small business to spend an inordinate amount of time and money on lawyers and CPAs just to comply with the tax code and prepare annual tax returns -- whether the business is making any money or not.”
The growing number of tax provisions means that small business owners must spend more resources on compliance rather than growing and creating jobs. Over time, our tax code has become more complex and truly temporary, with tax changes being made just one year ahead, for months at a time or even retroactively.
The cost for this compliance headache is nearly three times greater for small firms than big businesses. According to the Internal Revenue Service’s own National Taxpayer Advocate, there were over 500 changes to the tax code in 2010 alone. That’s an average of more than one change per day that small firms are forced to try to manage.
High tax rates also reduce the capital that small companies would invest back into their companies or create jobs. Higher taxes interrupt small business cash flow, especially since they operate with thin profit margins. Small firms need a functional cash flow for their day-to-day operations like wages, benefits, and utilities. The NSBA survey shows that the overwhelming majority of small businesses – 73 percent – say that federal taxes have a significant to moderate impact on the daily operation of their business.
Because of these challenges, the survey confirms overwhelming support – 67 percent – for tax reform that would reduce both corporate and individual tax rates, coupled with a reduction in business and individual deductions. I applaud efforts to advance the tax reform debate in Washington, and I remain hopeful that Washington can tackle this challenge in the future.
Tax complexity and high rates slow our economy. They unfairly punish success and create another time-consuming burden for small companies who would otherwise be devoting those resources to productive use. As the Committee will explore in today’s hearing, creating a tax code that is easier to navigate and promotes growth will benefit small businesses, create jobs and strengthen the economy.
Read the article online HERE.