PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

How Tax Reform Will Grow Our Economy and Create Jobs

By at 25 May, 2017, 1:52 pm

How Tax Reform Will Grow Our Economy and Create Jobs

Statement for the Record

By

Karen Kerrigan

President & CEO

Small Business & Entrepreneurship Council

 

Ways and Means Committee

U.S. House of Representatives

The Honorable Kevin Brady, Chairman

The Honorable Peter Roskam, Chairman, Subcommittee on Tax Policy

 

Statement submitted on:

May 25, 2017

Chairmen Brady and Roskam, thank you for your leadership, commitment to tax reform, and your consistent support for entrepreneurs and small businesses.

On behalf of the Small Business & Entrepreneurship Council (SBE Council) and our nationwide membership and network of just over 100,000 members, I am pleased to submit this statement for the record in support of reforming our nation’s tax system. Indeed, pro-growth tax reform will grow our economy and create jobs. Reforms that keep the needs of small businesses and entrepreneurs at the center will accomplish these important goals, and much more.

SBE Council is a nonpartisan, nonprofit advocacy, research and education organization dedicated to protecting small business and promoting entrepreneurship. For nearly 25 years SBE Council has worked to advance a range of policy and private sector initiatives to strengthen the ecosystem for startups and small business growth.

Tax reform is vital to the growth of U.S. small businesses and entrepreneurship. The focus of this effort must be on reforms that produce a simple, fair, and productive tax code – one that encourages investment, risk-taking, capital formation, and small business growth. Indeed, our small businesses have experienced a challenging operating environment for more than a decade. The financial crises, the Great Recession, followed by a weak economic recovery plus policy headwinds from Washington, have increased their business costs and sustained tremendous uncertainty. But things have changed. Small businesses and entrepreneurs are pleased that we are currently in a period where Washington has the opportunity to enact policies that create a better U.S. business environment and make our nation more competitive.

The U.S. tax code must encourage our existing businesses to grow and invest, but it must also foster higher levels of entrepreneurship.  The dearth in new business creation is a crises that must be addressed on several levels, but sound policies – including tax policy – play a key role.  SBE Council’s most recent “Gap Analysis” report on entrepreneurship finds a massive shortfall of businesses, some 3.4 million, compared to where we should be based on historical trends and key data related to incorporated and unincorporated self-employed, and employer firms as shares of the relevant population. SBE Council believes a pro-growth tax system is a critical part of the policy ecosystem that will enable greater levels of entrepreneurship.

Based in part on what the GOP House leadership and the Trump administration have put forward, the foundation for substantive, productive tax reform has been established. The key now is to move forward with measures that unify the business community and entrepreneurs, such as greatly reducing tax rates, allowing expensing of capital expenditures for all businesses, simplifying the tax system, eliminating the AMT and death taxes, eliminating special-purpose “loopholes,” among other measures.

Lower Tax Rates Critical to Entrepreneurs

SBE Council supports reducing both the corporate income tax rate, and the tax rate of pass-through entities. This is vital for U.S. business competitiveness and economic growth.

As you well know, the U.S. imposes one of the highest corporate tax rates on the planet. But reducing and reforming the corporate income tax rate is not just a “big business” issue. It’s very much about small business. According to the latest Census Bureau data, 86 percent of corporations have less than 20 employees, and 96.7 percent less than 100 workers.  Many of these small businesses are in high-growth sectors, and they – as well as their employees and our economy – would benefit tremendously from reducing the corporate rate.

At the same time, it must be recognized that 95 percent of businesses as non-C corporations pay the personal rather than the corporate income tax, which speaks to the need to reduce individual income tax rates as well.  Just as the U.S. corporate income tax rate ranks poorly, our individual rates are not globally competitive either.

As for top personal income tax rates, the 39.6 percent tax rate ranks 106th among 144 nations this year.  The news gets worse when factoring in the average state income tax rate (excluding local income tax rates but accounting for the deductibility of state income taxes on federal returns). This adds at least three percentage points to the U.S. rate, taking it up to at least 42.6 percent. That, in turns, pushes the U.S. tax rate global ranking down further to 115th out of 144 nations.

Small business optimism increased markedly following the 2016 elections and it remains strong in the second quarter of 2017.  But entrepreneurs and small business owners are counting on substantive tax reform – featuring relief from high tax rates and burdens on investment, onerous regulations, and ridiculous complexity – to help bring them to higher levels of growth and confidence. In turn, this will lead to more investment, job creation, innovation, and business expansion. With higher levels of growth (and more opportunity), the U.S. will also experience enhanced business startups which means more dynamism, innovation and quality job creation for our economy.

SBE Council’s hope is that the House quickly act on a tax reform package, so that small business owners and entrepreneurs can plan for a better tax system in 2018.  Again, lowering rates for all, vastly simplifying the system, making the system fair and productive to encourage growth is vital to U.S. competitiveness and leadership in the global economy.  With this in mind, we are hopeful your committee will continue to keep entrepreneurs and small businesses at the center of your reform efforts.  SBE Council and our members pledge to work with you every step of the way to ensure the U.S. has a modern, pro-growth tax system that does not stand in the way of opportunity and entrepreneurship in America.

Thank you for considering the views of SBE Council and our members.

Respectfully submitted,

Karen Kerrigan, President & CEO

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