The Clock is Ticking on Tax Reform
By SBE Council at 18 April, 2017, 9:40 am
By Karen Kerrigan-
Tax Day 2017 is a painful reminder that the U.S. tax code is an outdated mess. For entrepreneurs and small business owners, the complexity and inequities are especially onerous. So politicians who promise to fix America’s tax system are very appealing to entrepreneurs and the small business community. However, the “talk” is getting old. Washington has to deliver, and soon.
A better tax system would help foster entrepreneurship, small business growth, investment and a U.S. business environment that is more competitive. The GOP leadership has proposed a “Better Way,” and President Trump has said he will produce a “phenomenal” tax plan to follow up on his campaign promise.
Among other reasons as to why the U.S. tax system must be overhauled are:
U.S. Ranks Poorly. The U.S. ranks #36 in the world in the “paying taxes” category, according to the World Bank’s Doing Business 2017 report. The measurement takes into account tax rates, complexity and costs. This means the tax systems of 34 other nations are more hospitable to business start-up, growth and investment than ours.
High Compliance Costs for Small Businesses. The per-employee cost of tax compliance for small businesses is $1,518, according to a 2014 National Association of Manufacturers report on regulations (the total per-employee regulatory cost is $11,724). Resources and capital that get funneled into the black hole of tax compliance, means less money available for investment, wage increases and quality job creation.
Impediment to Small Business Growth. Taxes are consistently cited by small business owners as a top challenge facing their firms. The recent Wells Fargo/Gallup Small Business Index survey (March 2017) cited “taxes,” second only to “government regulations,” as a top challenge facing their firms.
Federal Tax Code a Drag on the Economy and Productivity. Total compliance costs for IRS tax filings amount to a staggering $409 billion, consuming 8.9 billion precious hours of time, according to a 2016 Tax Foundation report. “This is equal to nearly 4.3 million full-time workers doing nothing but tax return paperwork.”
Highest Corporate Tax Rate in the World. The U.S. has the highest corporate income tax rate among the 35 industrialized nations, and the third highest among all countries. (Tax Foundation 2016). Corporate tax rates matter to large and small businesses alike, as 86.2 percent of C corporations had fewer than 20 employees (2012 Census Bureau data).
30 Long Years. Yes, I loved the 80s too. And the Tax Reform Act of 1986 was one of the reasons why policy and advocacy groups like SBE Council are very fond of this period. But it’s time to modernize our nation’s tax system. It’s been more than thirty years since the tax code was last overhauled. The world has dramatically changed and the global economy is much more competitive.
Too many promises have been made over the past twenty years or more to reform America’s tax system. The time for talk is over. Small business owners and entrepreneurs want action in 2017, and President Trump and Congress must deliver on their promises.
Karen Kerrigan is president & CEO of the Small Business & Entrepreneurship Council.