Everyone Wants to Know - What's Top Small Biz Issue for Congress?

By Jennifer White

What is the number one thing small business owners want Congress to focus on this year? Is a lack of political certainty affecting America’s business environment? What can be done to better help women and minorities obtain capital to start their businesses? These are the questions the House Small Business Subcommittee on Economic Growth, Tax, and Capital Access discussed during a hearing entitled “State of the Small Business Economy,” giving the committee the opportunity to listen to testimony on concerns confronting small business owners in 2017.

To no surprise, the committee heard that the most taxing issues to small business right now are healthcare deficiencies, tax reform, and regulatory reform, and Chairman Bland posed the question, “In addressing these issues, where should we spend the most time?”

Holly Wade, Director of Research and Policy Analysis for the National Federation of Independent Business (NFIB), said you can’t pick just one. According to NFIB’s 2016 Small Business Problems and Priorities Survey, health insurance is the number one issue plaguing small business, directly followed by burdensome regulations and federal taxes. The small business economy, she said, has struggled to bounce back from the recession due to taxes, regulations, and health insurance, which consume valuable resources of small businesses, including time and profits. To restore the small business economy, all three of these issues must take priority.

Another common denominator heard in each witness’ testimony was concern over lack of policy and regulatory certainty regarding the business environment. Steve Veuger, Resident Scholar of the American Enterprise Institute, said that despite measures such as passage of the Small Business Regulatory Flexibility Improvements Act, requiring more careful consideration on rules and regulations and how they affect small business, measures of uncertainty have spiked in the last few months. Mr. Veuger also pointed out that congress must be careful in the repeal and replacement of the ACA – to move forward without a clear direction of policy, he said, could cause individual and small group markets to unravel in a detrimental way.

Members of the subcommittee also asked questions about the difficulty that women and minorities still face in regard to obtaining jobs and accessing capital. According to Victor Hwang, Vice President of Entrepreneurship for the Ewing Marion Kauffman Foundation, an important part of that issue is that while the U.S. is increasingly becoming more racially diverse, the American entrepreneurial population does not reflect it. Today, 80.2 percent of American entrepreneurs are white and 64.5 percent are male. Mr. Hwang said that this gap for racial minorities and women is costing the country millions of jobs and that the key piece to increasing diversity in entrepreneurship is by overcoming social barriers, such as lack of a formal degree, race, or gender, that can often prevent individuals from turning an idea into a business reality.

Further, Bob Bland, CEO and Founder of Manufacture New York, and the co-chair of the Women’s March on Washington, relayed her own struggles of accessing capital because of past credit. Even with great programs it can still be difficult for women to get loans, she said, because they still don’t qualify for low interest rates, and need something that provides for more risk like venture capital, which can be even harder to obtain. Mr. Hwang agreed that venture capital is not on a level playing field. He suggested that building more opportunities for connections at a local level based on trust would be a very core way of getting obtaining capital to a level playing field.

“Being an entrepreneur is hard and there are risks associated – it’s the spirit of being able to take a loss that makes America great – what can we do to spread the risk so that everyone everywhere has the opportunity to be one?” asked Rep. Kelly as the final question of the hearing. We educate people on how to find jobs, not how to make jobs, answered Mr. Hwang. To understand the access issues entrepreneurs face, we have to focus on the people who are starting at the bottom with nothing.

74,000 Pages of Tax Talk

By: Mark Lee

The U.S. Tax Code is a 74,000 page maze of sections, clauses, deductions and exemptions. Small business owners certainly do not have the time to learn every twist and turn, clause and section in the Code.  Not only do entrepreneurs have to keep their doors open, take care of their employees, and keep on the right side of state and local regulations, but they must also submit detailed filings to the IRS that vary across the spectrum of the small business ecosystem.  So, what should be done to streamline the Code and lessen the burden on our nation’s small business community?

The House Small Business Committee (HSBC) held an appropriately titled hearing, “Start-ups Stalling? The Tax Code as a Barrier to Entrepreneurship,”  to begin to tackle this issue.  The HSBC is one of the more bipartisan committees in the House, so it was no surprise that both Chair Steve Chabot of Ohio and Ranking Member of Nydia Velazquez of New York were in general agreement that the tax code is desperately in need of reform and simplification. 

The hearing was convened at a time when Speaker of the House Paul Ryan was busy whipping up support for a comprehensive federal tax code overhaul--- one not seen since the Reagan Administration.  Ranking Member Velazquez made it clear that small businesses must be at the forefront of any tax overhaul.  Since pass-throughs, S-corps and LLCs are all subject to different tax regimes, Rep. Velazquez mentioned, simple business formation is one of the first complicated tax hurdles that an entrepreneur has to clear. 

Additionally, startups and small businesses are often operating in the red or on very slim revenue margins to where an unexpected hurdle could potentially be ruinous.  Chair Chabot asked the panel about the cost of compliance and the fear of audits.  As we all know, the majority of small businesses do their taxes in-house and cannot afford accountants and tax attorneys.  The panel unanimously agreed that this was amongst the most pressing tax burden they face.  Witness Tim Reynolds, President of Tribune, Inc. of Hudson, Ohio and testifying on behalf of the National Small Business Association, recounted his own recent audit costs. His small firm paid thousands of dollars in compliance costs alone: a number that doesn’t account for the lost business and revenue that resulted from the audit process.  Other witnesses included Mr. Kyle Pomerleau, Director of Federal Projects at the Tax Foundation; Troy Lewis, CPA, CGMA, the Tax Executive Committee Immediate Past Chair of the American Institute of CPAs, and David Burton, Senior Fellow of Economic Policy at the Institute for Economic Freedom and Opportunity at the Heritage Foundation. 

In an already wild start to a new Administration and Congress, tax reform remains near the top of both of their agendas.  Small businesses everywhere are rightfully screaming for relief. We need to stay on top of advocating for tax reform that is a less burdensome regulatory regime for our nation’s vital job creators. 

It's a Big MACs World

By Ann Sullivan

Earlier this month, WIPP submitted comments on a proposed rule changing the rules related to small business participation on multiple award contracts, also known as MACs.

The FAR Council, which oversees federal acquisition regulations, sought to clarify the use of set-asides, reserves, and orders placed against MACs. As contactors already know, use of these large contracts is steadily growing. Ensuring all socioeconomic groups, including WOSB’s have access to these opportunities, is a top priority for WIPP.

The rule adds coverage for the new concept of a “reserve.” A reserve would be used on MACs where a partial set-aside is not feasible, but where agencies still want small businesses to participate as prime contractors. This “reserve” concept is very similar to the tracks outlined in WIPP’s Do Not Enter report, which shows how agencies have utilized certain socio-economic set-asides, and discriminated against women-owned firms.

While the proposal provides clarity for contracting officers, it falls short by including an out-of-date policy regarding the limitations on subcontracting. In May 2016, SBA finalized a rule change that substantially revised the limitations on subcontracting by making it easier for women-owned firms to comply. The new rule focuses on the percentage of the award amount that has been subcontracted, not the percentage of work. The rule also provides an exemption for similarly situated entities, so WOSBs subcontracting to other WOSBs does not count against the percentage of the award subcontracted. This new policy is a win-win for small businesses, but the FAR Council does not acknowledge the new policy in its rule. If one of the purposes of the rule is to clarify small business authorities for contracting officers, the FAR should use the most up-to-date performance of work requirements.

WIPP appreciates the interest of the FAR Council in providing greater flexibility and clarity for the role of small businesses in multiple award contracts. But this proposed rule does not do enough. Without additional small business protections, this rule could hurt our nation’s biggest job creators- small businesses.