“Tax Reform and Small Businesses: Growing Our Economy and Creating Jobs.”
Chairman Buchanan, Ranking Member Doggett and fellow Members of the Committee,
Thank you for inviting me to speak with you today about the new tax law and its impact on 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 many 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, 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 58,000 small business owners across the country, with nine 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; we are its foundation. America's 30 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
Despite this undeniable importance to our economic success, small businesses are consistently left behind during national policy debates. Our nation's tax system has historically benefited the wealthiest Americans and large multinational corporations at the expense of small business owners. Small Business Majority's polling found 7 in 10 small business owners believe their business is harmed when big corporations use loopholes to avoid taxes, and 85% feel the tax code unfairly benefits large corporations over small businesses. n3
The newly enacted Tax Cuts and Jobs Act has done nothing to address this disparity. Indeed, we believe the law will hurt small businesses and the economy because (1) it will increase the deficit by
The new law's tax breaks are skewed towards large corporations and a handful of wealthy pass-through entities, not
The real winners of the new tax law are large corporations and wealthy individuals, not
Additionally, the law's treatment of pass-through entities gives the bulk of the benefit to the wealthiest business owners, rather than
According to the JCT report, the majority of the 2018 tax reduction benefit overall will go to the top 2.3% of pass-through firms, and by 2024 that percentage drops to one percent. n6 By our calculations, a business owner earning
According to the
In addition to not providing a real tax benefit, the law will in fact hurt small businesses by making health insurance more expensive and difficult to access. Not only did
Tax cuts are too convoluted to benefit small businesses
The tax cuts are structured in a way that is convoluted and benefit those at the top far more than lower-income business owners, with the majority of benefits going to the wealthiest pass-through business entities. Small business owners who do see any benefit will not receive enough savings to grow or invest back in their businesses.
While corporations received large, permanent tax cuts across the board that will allow them to plan ahead for the future, the same cannot be said for most small businesses. Small business owners were given a temporary and complicated tax deduction that does nothing to streamline their taxes or help them invest back into their businesses. A recent report co-authored by
In addition to the temporary nature of this tax cut, the complexity and confusion surrounding the new deduction means that any savings will go towards tax professionals to help entrepreneurs navigate their taxes or towards dealing with increased administrative burdens. We frequently hear from our members how confusing they find the changes.
Other small business owners echo this feeling of confusion after looking online and finally turning to tax professionals for help. "After doing quite a bit of research regarding the tax law, I'm still confused as to what [the] new changes mean for me and my employees. I have yet to be able to find a single source with straightforward information," says
Given these sentiments, it's not surprising that the
Simply put, small business owners wanted a simplified and more streamlined tax system that would also help level the playing with large corporations, and they got the opposite.
The new tax law fails to address loopholes and exacerbates the risk that wealthy individuals will game the system
The enactment of a "territorial" corporate tax system in the new law creates an even more unequal playing field for small businesses because it allows a few multinational corporations to funnel their profits to the lowest-taxation foreign jurisdictions--a provision small firms are unable to take advantage of. Indeed, this loophole primarily benefits 30 large corporations at the expense of small businesses. According to the
And, last but not least, the new tax code, with its large gap between top individual rates and top pass-through rates, only encourages wealthy individuals to game the system by simply declaring themselves pass-through business entities. While the new law exempts certain industries from accessing the pass-through rate, there is no way to guard against abuse of the new deduction and ensure that it does not further exacerbate the benefits to hedge fund managers, lobbyists, lawyers and investment bankers--rather than
Conclusion
Small business owners feel that our tax system primarily benefits wealthy corporate interests at their expense. The facts support this assessment. America's hard-working entrepreneurs don't want special treatment; they simply want to compete on a level playing field.
This is why we need a tax code that benefits America's entrepreneurs who are focused on growing their enterprises and making payroll at the end of each month. We had a once-in-a-generation chance to make our tax code work better for small businesses, and we blew it.
Thank you for the opportunity to comment on this important issue for America's small business community. I would be happy to answer any questions.
n1 Small Business Administration FAQs,
n2 ADP National Employment Report, January-
n3 Small Business Majority, "Small Business Owners Want Fair Tax System Over Tax Cuts,"
n4
n5
n6 Ibid.
n7
n8 Tax Policy Center, "Distribution of Business Income, by Statutory Marginal Tax Rate; Current Law, 2017,"
n9 Businesses for Responsible Tax Reform, "The Tax Cuts and Jobs Act: Implications for Small Businesses,"
n10 Businesses for Responsible Tax Reform, "Poll: Tax Law Won't Help Small Businesses Grow,"
n11
n12
Read this original document at: https://waysandmeans.house.gov/wp-content/uploads/2018/05/20180523TP-Testimony-Arensmeyer.pdf
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