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.