The Voice of Microbusiness Talks Tax to Congress
AEO recently submitted testimony to the House Small Business Committee on comprehensive tax reform. Our monthly policy article gives an overview of advocacy efforts in that area. For more details, I encourage you to read the testimony.
Underserved entrepreneurs deserve a tax system that rewards the effort, tenacity, and risk it takes to start and grow a business. Moreover, they deserve a system of revenue collection (because that’s what taxes are) that is simple and fair.
AEO’s testimony to the House Small Business Committee said just that. Citing reports from the IRS National Taxpayer Advocate as well as the SBA Office of Advocacy, the testimony shared similar sentiments that AEO President Connie Evans shared with Treasury Secretary Jack Lew: any overhaul needs to be comprehensive.
What does that mean? It means that the proposal to lower the corporate tax rate, favored by the White House and some in Congress, should not happen independently of adjusting individual rates in a similar manner. This distinction matters because a majority of microbusinesses are structured as “pass-through” entities paying taxes as individuals (S-Corps, Sole-proprietorships, partnerships, and LLCs).
Corporate-only reforms would be unfair to these businesses – and for that reason AEO has always supported comprehensive (corporate + individual) reform. The testimony elaborated on this important point and what it means to the microbusiness community.
The testimony pointed out that the tax code is outdated because the entrepreneurial landscape no longer aligns with a 1980s tax system. The “independent workforce” is growing at an incredible pace: the number of Americans who “primarily work on their own” is up 14% (1.3 million people) since 2001.
None of this is new to those who follow AEO. We know that these entrepreneurs hold the key to jumpstarting our economy. As often noted, AEO’s Power of One in Three report found that if 1 in 3 microbusinesses hired just one employee, America would be at full employment. A tax system that does not support these companies stands in the way of their important contribution.
The testimony also identified tax policies that, absent major reforms, would benefit underserved entrepreneurs. This includes making volunteer tax filing assisters available to microbusinesses. An already existing program could easily be expanded to aid entrepreneurs at a frantic, and complicated time of year.
AEO asked Congress to consider tax credits that benefit new businesses, helping offset the costs of launching a new company. A proven tax credit, the Earned Income Tax Credit—a refundable tax credit for low to moderate-income working individuals—was included as important to microbusinesses. We supported the suggestion of our partner CFED to simplify and expand the “Saver’s Credit” to incentivize retirement savings for microbusiness owners.
More ideas for reforming the tax system to incentivize entrepreneurship and innovation are out there. AEO will continue working to identify policies that let business owners focus more on their business and less on complex tax requirements. At the end of the day, all of these decisions should be made with the basic principles of simplicity and fairness in mind. And that’s exactly what we asked Congress to do.
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