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Small Business Owners Seek Simplification at Tax Reform Hearing

Posted on July 14, 2017 by Stephen K. Cooper, Asha Glover, David Van Den Berg

Small business owners urged lawmakers July 13 to simplify the federal tax code even as some conservative Republicans questioned the likelihood of tax reform passing this year.

Testifying before the House Ways and Means Tax Policy Subcommittee, Teresa Meares, president of DGG Uniform and Work Apparel, noted the code’s complexity, which she said led her to miss deductions and overpay taxes at a company she recently sold.

“The complicated nature of the tax code led to misunderstandings and confusion,” Meares told lawmakers, adding that she spent $20,000 in legal and CPA fees. “Yes, I was able to go back and correct these incorrect filings, but the time, effort, energy, and loss of the ability to use the capital when I needed it most had already passed.”

Republican lawmakers pointed to Meares’s experience as a small business owner as justification for the GOP’s “A Better Way” tax reform agenda, which includes a controversial border-adjustable tax, full expensing, and elimination of interest deductibility.

Tax Policy Subcommittee Chair Peter J. Roskam, R-Ill., said Congress must permanently fix the tax code rather than pass temporary tax cuts as some lawmakers have recently suggested. Economic growth matters, as does tax simplification and halting the erosion of the U.S. tax base, he said.

“We need to navigate through these fault lines,” Roskam said, acknowledging that small businesses have concerns about the GOP blueprint’s elimination of interest deductibility proposal and the chance that some taxpayers will game the lower tax rates on passthrough businesses. “Message received,” he said.  

Chye-Ching Huang of the Center on Budget and Policy Priorities testified that providing a rate cut for passthrough businesses would overwhelmingly benefit wealthy Americans and tax avoiders, not small businesses.

She said the GOP blueprint and the Trump administration’s tax proposals would benefit wealthy Americans and large, profitable corporations, but would fail to fully offset the cost “by scaling back tax breaks or through other sources of revenue.”

House Republican taxwriters have been working with their Senate counterparts and the Trump administration to produce a unified tax reform plan that Congress can pass in 2017, possibly after the August recess. However, tax reform appears to be dependent on passage of the Senate’s Better Care Reconciliation Act (BCRA), which is moving slowly in the Senate.

The slow pace of progress on tax reform has some House Republicans worried.

The Trump administration needs to release a detailed tax plan before September, said Rep. Mark Meadows, R-N.C., chair of the House Freedom Caucus, during a Conversations with Conservatives event July 13 on Capitol Hill.

“We will not get tax reform, guys, if we’re waiting until September,” he said. “If we wait until September, that means that we get legislative text maybe in October. That means that we maybe get it out of here, if it’s fast-tracked, by the end of October. Which means that it goes over to the Senate and it sits.”

Treasury Secretary Steven Mnuchin said July 9 on ABC’s This Week that the objective is to have a “full-blown release of the [tax reform] plan in the beginning of September,” with final passage to come before the end of the year. But on July 10, White House Director of Legislative Affairs Marc Short said if Republicans have a plan in place before lawmakers head home for August, they could “begin the markup process when we return” from the recess.

Rep. Jim Jordan, R-Ohio, said during Conversations with Conservatives that the administration should release its plan as soon as possible and that the plan shouldn’t include the border-adjustable tax, despite that provision’s support by House Speaker Paul D. Ryan, R-Wis., and House Ways and Means Committee Chair Kevin Brady, R-Texas. Jordan called the tax “a new tax on the American economy.”

“We don’t think the BAT tax should happen,” he said. “We’d like to see a little more of an outline on what that tax reform is going to be before we support a budget.”

Asked if there would be carveouts or exceptions for the border-adjustable tax in the final GOP legislation, Brady told reporters he was working with the White House and Senate to figure out how to address U.S. companies moving overseas, but said carveouts are part of that discussion, as well as other alternatives.

On the topic of Affordable Care Act taxes, Brady maintained that the economy would grow if the taxes were repealed. “I continue to believe that each of those Obamacare taxes does the economy wrong. I still think there’s a lot of Americans, including those who have Medicaid today, that could benefit from the 130,000 new jobs that would be generated by eliminating” the net investment income tax, he told reporters during a weekly briefing.

Brady also said Ways and Means Republicans are looking at ways to allow more people to have access to the charitable deduction. “So our committee — Ways and Means Republicans — have been examining first, how do we unlock more charitable giving, and how do we encourage more of it, not just for the 5 percent of Americans or so who will itemize under the Republican blueprint, but at all income levels? We want to encourage Americans who are incredibly generous already to give more, to give earlier in life,” he said.

Follow Stephen K. Cooper (@ScoopOnTaxes), Asha Glover (@AshaSGlover), and David van den Berg (@TAtaxDavidVDB) on Twitter for real-time updates.