As the April 18 IRS deadline passed, many American families and small-business owners breathed a collective sigh of relief after the stress of getting their taxes filed on time. The United States tax code is a complex and contradictory document made up of nearly 70,000 pages and roughly 3.8 million words. The code begs for reform, yet it has been 26 years since the last major overhaul. Instead of a comprehensive approach, policy makers have attacked the tax code in a piecemeal fashion, including an estimated 579 changes last year alone, which have only served to make the tax code more difficult to understand and comply with.
With these facts, it is no surprise that many find it difficult to navigate their way through the tax code labyrinth. As chairman of the House Committee on Small Business, I am particularly concerned with the impact tax complexity has on small companies in the United States. Small businesses have long been a cornerstone of the American economy. They create seven out of every 10 new jobs and employ more than half of the country’s private sector workforce. During a time when job creation is a top priority, it is discouraging that our burgeoning tax code constrains small-business growth.
Tax issues are the single most significant set of regulatory burdens for most small firms. The more time and resources that are spent on tax compliance, the less an entrepreneur has to hire employees and grow. A recent National Federation of Independent Business (NFIB) study found that four of the top 10 small-business problems were tax-related. Complexity weighs heavily on small employers, because they often lack the resources to hire expensive accountants or legal assistance.
Last Wednesday, the Small-Business Committee held a hearing to examine the complexity of the current tax code and its impact on small employers. Two small-business owners and a CPA joined National Taxpayer Advocate Nina Olson in expressing frustration with the current tax regime. One witness testified that because of the code’s complexity, some small-business owners decide to “not hire people as opposed to expanding and becoming exposed to regulatory compliance brought on by hiring people.”
If we want to create an environment that fosters investment, growth, and jobs, we need to reduce unnecessary regulatory burdens on our entrepreneurs—the tax burden being first among them. And effective reform will not be focused solely on the corporate tax rates. We must pursue individual reforms as well. Small companies often file their taxes much differently than large companies. In fact, about 75% of small businesses are taxed at the individual rate as a “pass-through” entity. A report by Ernst & Young estimates that small businesses could see their tax burdens actually rise by about 8% a year, or $27 billion, if Congress passes corporate-only reform.
Following our hearing on Wednesday, Subcommittee on Economic Growth, Tax, and Capital Access Chairman Joe Walsh (R.-Ill.) and I sent a letter to House Committee on Ways and Means Chairman Dave Camp (R.-Mich.) and Ranking Member Sander Levin (D.-Mich.) to push for common-sense reforms to simplify the tax code for small businesses. The complexity of the federal tax code costs small employers time and money, reducing their ability to invest in jobs and expansion, therefore, the House Small-Business Committee will continue to fight for real reforms that will protect small business and get unnecessary hurdles out of the way.