Joint Economic Committee Issues Testimony From Small Business Majority
"Chairman Tiberi, Ranking Member Heinrich, Vice-Chair Lee and fellow Members of the Committee,
"Thank you for inviting me to speak with you today about policies that can help promote entrepreneurship, and to offer testimony about the major issues facing America's small businesses.
"I was a long-time small business owner prior to founding Small Business Majority 12 years ago. For 13 years, I was the founder and CEO of ACI Interactive, an award-winning interactive communications company, and earlier I was the chief operating officer of a pioneering multimedia business. Following my years of experience running small businesses, I founded Small Business Majority to create a national organization to serve as a leading advocate for America's entrepreneurs.
"Small Business Majority's mission is to empower America's entrepreneurs to build a thriving and inclusive economy. We actively engage small business owners and policymakers in support of public policy solutions, and deliver information and resources to entrepreneurs that promote small business growth and drive a strong, sustainable job-creating economy. Our extensive scientific opinion polling, focus groups and economic research help us educate and inform policymakers, the media and other stakeholders about key issues impacting small businesses and freelancers, including access to capital, taxes, healthcare, retirement and critical workforce issues.
"Small Business Majority has a network of more than 55,000 small business owners across the country, with 10 offices in
"Through our daily interaction with small business owners and self-employed entrepreneurs we know that small businesses are not just the backbone of the American economy; they are its foundation. America's 28 million small businesses represent 99% of all employer firms and account for half of our nation's jobs and economic output, and their creativity spurs innovation in all sectors of the economy. According to the
"In order to ensure our nation's job creators can thrive and help grow our economy, it's crucial that
"We need a tax system that benefits America's entrepreneurs who are focused on growing their enterprises and making payroll at the end of each month. Small business owners feel that our tax system primarily benefits wealthy corporate interests at their expense. They don't want special treatment; they simply want to compete on a level playing field.
"Small Business Majority's polling has shown that 90% of small business owners believe big corporations are using loopholes to avoid taxes that small businesses have to pay, and 92% believe corporations' use of those loopholes is a problem.iii Similarly, 9 in 10 small business owners believe that
"That's why we're concerned by the current proposal for tax reform. While some are touting the plan as a boon for small businesses, the reality is that it will not actually benefit most
"Some claim the current proposal to cap the tax rate for pass-through entities at 25% would be a boon for small business. In fact, this would impact only a handful of small firms according to the Tax Policy Center analysis. More than 87% of pass-through entities already pay a marginal tax rate of 25% or less, and less than 2% pay the current top marginal rate of 39.6%. Moreover, if individual tax brackets are streamlined to 12%, 25% and 35%, pass-through entities that would benefit from the pass-through cap rate would include only the 1.8% earning
"A startling 88% of the savings generated by cutting the pass-through rate to 25% would go to the top 1% of earners. In short, this proposal would primarily benefit hedge fund managers, lobbyists and investment bankers--not
"And, last but not least, a tax code with a large gap between top individual rates and top pass-through rates can potentially encourage wealthy individuals to game the system by simply declaring themselves pass-through business entities.
"If
"profits would have a much greater impact. As for corporate taxes, cutting the top rate would help some small businesses that are organized as Ccorporations, especially considering small businesses are unable to take advantage of the same accounting loopholes as large corporations. But doing so without getting rid of corporate tax loopholes would greatly increase the deficit. Economists from the Tax Policy Center estimate that reducing the corporate rate to less than 26% would be impossible to offset with just a reduction in loopholes; a reduction to 20% would reduce federal tax revenue by
"This is why it's crucial to implement policies that will help all entrepreneurs rather than giving tax breaks to those who need it least. Any substantive changes to the tax code must promote economic development from the bottom-up, enacting policies that benefit small businesses, rather than the top-down. Our specific proposals include the following:
- Ensure any changes to the corporate and personal tax codes have a significant, direct benefit to small businesses and self-employed individuals, as opposed to large businesses, hedge funds and the very wealthy.
- When considering a targeted, responsible reduction in business tax rates, ensure that it is accompanied by the elimination of costly loopholes that primarily benefit the wealthy and large corporations, such that the result is revenue-positive, or at least revenue-neutral.
- Instead of reducing pass-through business income tax rates from the top down in a manner that benefits only a sliver of small businesses, we urge the committee to examine a proposal as part of regular order discussions about tax reform that would benefit small businesses from the bottom up, rather than the current top-down proposals that will only benefit wealthy individuals. For example, we propose allowing small businesses to deduct their first
- Consider a modest reduction of the nominal corporate tax rate, thus reducing the actual tax rate for most
- Reject the current proposal for "full expensing" of all capital purchases. Small businesses can now expense their first
- Oppose any efforts to reduce top individual tax rates. It is a myth that top individual tax rates adversely harm
- Oppose the enactment of a "territorial" corporate tax system that would allow a select few large multinational corporations to game the system by funneling their profits to the lowesttaxation foreign jurisdictions.
- Crack down on the ability of large corporations to reduce their tax burden simply by parking their profits offshore or moving their headquarters outside the country.
- Uphold the estate tax in its current form, understanding that it currently protects virtually all small businesses and family farms.vii
- Ensure parity between online and bricks-and-mortar businesses with a reasonable and fair Internet sales tax solution.
- Simplify and expand the small business tax credit created by the Affordable Care Act--helping more small businesses qualify for and utilize it.
- Pass healthcare tax equity for the self-employed so that freelancers can deduct their healthcare expenses from their FICA tax obligations--just like other business entities.
- Enact the bipartisan Investing in Opportunity Act that will help revitalize economically distressed communities by, among other things, allowing investors to temporarily defer capital gains recognition if they invest in an "opportunity zone."
- Increase limits for deducting start-up and organizational expenses from the current
- Allow very small firms to use a simplified method of cash accounting.
"These changes will provide critical benefits to the entrepreneurs and small business owners who need it most, allowing them to grow and expand their business on a level playing field with large corporations. Promote Policies that Increase Access to Capital While meaningful tax reform can play a role in spurring small business innovation and job creation, a more critical issue for entrepreneurs is access to capital. Access to capital is at the core of what entrepreneurs need to thrive and grow their business. Unfortunately, too many small businesses, especially women and minority-owned firms and entrepreneurs in distressed and rural communities, are struggling to gain the capital they need to launch or grow their businesses. According to our scientific opinion polling, 90% of small business owners agree that access to capital is a problem, particularly since the Great Recession.
"
"Additionally, most traditional banks of all sizes, even those offering Small Business Administrationguaranteed loans, have significantly reduced or eliminated loans below a certain threshold, typically
"While there are some signs that access to capital is improving in some parts of the small business community, there are significant gaps that remain in critical areas, including minority and rural communities and for women and veterans. For example, while women-owned firms are the fastestgrowing segment of businesses, studies find that women do not get sufficient access to loans and venture investment. Women account for only 16% of conventional small business loans and 17% of SBA loans even though they represent 30% of all small companies. Similarly, minority business development is on the rise--the rate of minority business ownership was 14.6% in 2012 compared with 11.5% in 2007. Yet, according to the
"The struggle female and minority business owners face in accessing capital is illustrated by the story of an
"We're glad community financial development institutions (CDFIs) like Accion are filling the gap for small businesses, but there is not nearly enough capital available to entrepreneurs from CDFIs alone. New online lending opportunities offer promising new sources of capital, with alternative lending already reaching more than
"There are several steps that policymakers can take to increase access to capital for entrepreneurs and unleash their potential as job creators. These proposals include:
- Maintain and expand
- Maintain and expand funding for the
- Promote responsible lending practices by new and alternative lenders and brokers. To this end, Small Business Majority has worked with a coalition of lenders, brokers, think tanks and small business advocates to launch the Small Business Borrowers' Bill of Rights, the first-ever consensus on responsible lending practices. The Small Business Borrowers' Bill of Rights outlines a set of fundamental principles for lending and puts the rights of borrowers at the center of the lending process.
- Support the efforts of the
- Ensure fair and clear regulations on crowdfunding and other non-bank, non-VC sources of capital while providing safeguards for business owners and investors.
- Provide small businesses, particularly minority businesses, with increased opportunities to participate in SBA loan programs and small business development center programs.
- Support and expand all other government efforts (e.g., SBA,
"Increasing responsible lending opportunities and protections for small business owners will provide a powerful benefit to disadvantaged areas and the American economy as a whole, as entrepreneurs-- especially the growing ranks of women and minorities--safely access the loans they need to build a business that generates household wealth and stability for themselves and the members of their communities they employ.
Access to Healthcare
"In addition to more options to access capital, small business owners need reliable and affordable healthcare so that they can invest their time and resources into growing and expanding their businesses. Prior to the implementation of the Patient Protection and Affordable Care Act (ACA), entrepreneurs and their employees comprised a disproportionate share of the working uninsured. Indeed, in 2011 more than 6 in 10 of the nation's uninsured workers were self-employed or working at a company with fewer than 100 employees.x Post-ACA, the uninsured rate for self-employed individuals has fallen drastically from 31% in 2012 to 19.5% in 2015.
"A recent analysis by the
"The strong reliance of self-employed individuals and small business employees on marketplace coverage is clear evidence that the ACA greatly reduced "job lock." Prior to the law, many individuals, particularly those with pre-existing conditions, felt tied to their jobs because they could only access affordable health insurance through employer-sponsored coverage. The ACA bans insurers from denying coverage based on pre-existing conditions or charging more based on health status, making obtaining affordable insurance through the individual marketplace a reality for millions. This has enabled a significant number of entrepreneurs to leave their jobs and start businesses, since they are no longer afraid to leave a job with health benefits now that a pre-existing condition will not prevent them from accessing comprehensive and affordable coverage.
"Entrepreneurs and small business owners have also benefitted from the expansion of Medicaid. Small Business Majority's scientific opinion polling found 21% of small business owners or their employees are enrolled in Medicaid.xi According to the
"For many entrepreneurs, the ability to access healthcare through the individual marketplace or Medicaid was the push they needed to start or expand their business. For example, a young business owner from
"In addition to the decreases in the unemployed rates and reduced job lock, small business owners have also seen their costs stabilize. We're now seeing much smaller increases in the small group market compared to pre-ACA, where double-digit increases were often the norm. A report from the
"While there are some aspects of the ACA that could be improved upon, repealing the ACA would hurt entrepreneurs and small business employers and stunt job growth. Our recommendations to stabilize insurance markets include protecting robust enrollment and marketing efforts to ensure stable and healthy marketplaces with a mix of age and health risks, ensuring healthcare tax equity for the selfemployed and addressing the rising cost of prescription drugs.
"Healthcare is a critical issue for our nation's entrepreneurs, and they need the peace of mind that they can start and invest in their businesses without worrying about affording coverage for themselves or their employees. Ensuring access to a variety of healthcare options through Medicaid, the individual marketplaces and the small group market is critical to making sure that individuals can make the leap to seek out their own entrepreneurial path or join thriving small businesses.
Conclusion
"
"Thank you again for inviting me to appear today. I look forward to your questions."
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Footnotes:
i Small Business Administration FAQs,
ii ADP National Employment Report, January-
iii Small Business Majority,
iv Tax Policy Center,
v
vi Tax Policy Center,
vii Tax Policy Center, 2017, http://www.taxpolicycenter.org/briefing-book/who-pays-estate-tax
viii The Future of Finance,
ix The Federal Reserve Banks of
x
xi Small Business Majority,
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