2018 Policy Agenda for Entrepreneurs and Small Business – Issue Three: Tax System Modernization

By at 24 January, 2018, 1:42 pm

By Karen Kerrigan

Entrepreneurs entered 2018 with high confidence and a strengthening economy.  Indeed, the keys to small business growth and healthy entrepreneurship hinge on strong and sustainable economic growth and the continuance of policies that lift government imposed barriers, encourage capital formation and investment. To that end, entrepreneurs are hopeful that President Trump and Congress will prioritize their agenda to provide small businesses with every opportunity to succeed in 2018.

When entrepreneurs and small businesses are successful, they help create the quality jobs and innovative breakthroughs that are needed for a dynamic economy that benefits everyone.

The big tax relief package that just kicked in will certainly power economic growth this year. Regulatory actions taken by the President and his Administration have already paid dividends for the economy by boosting business optimism, which has fueled more investment and positive economic activity.

Still, there is more to be done to make the U.S. more globally competitive for all U.S. businesses and to revitalize the ecosystem for entrepreneurial activity.  Transforming the outdated regulatory system, improving capital access, lowering health coverage costs and increasing choice and competition, global market access and intellectual property protection, and additional tax code fixes are some of the key areas for action.

Regarding infrastructure, broadband deployment and other priorities of the Trump Administration and Congress, the voice of small businesses will be vital to ensuring that changes in these areas are beneficial to our sector.

In this blog post, I address tax system modernization and the reforms still needed to reduce complexity and ease compliance. The tax code needs to work for entrepreneurs and small businesses in a modern and ever-changing marketplace.

These issue briefs/posts on SBE Council’s policy priorities have also been posted:

Regulatory System Transformation and Reform

Access to Capital

Broadband Access and Deployment

Health Care Affordability and Innovation

Growth via Global Trade and Strengthening IP  

A Modern Tax System Will Foster Entrepreneurship and Stronger Small Businesses and Survivability

The “Tax Cuts and Jobs Act” signed by President Trump at the end of 2017 is already paying dividends for small businesses and our economy.  Entrepreneurs and small businesses are getting a boost from tax reform, and the headlines are filled with announcements of big companies that have outlined plans to increase wages, provide bonuses and implement major U.S.-based investment projects. These big projects offer small business suppliers significant opportunities in 2018, and the years ahead.

As SBE Council noted following House and Senate passage of the tax legislation, 2018 will be an opportunity to address changes that were not included in the final bill.  Tax writers and congressional leaders have said that the Tax Cuts and Jobs Act (TCJA) – while historic – is a sound launching point for other reforms.  This is good news, as there are many changes and adjustments to the tax code that are needed to support our nation’s entrepreneurs and small businesses.

A Framework for Future Action on Expiring Provisions

As entrepreneurs are well aware, many provisions in the TCJA expire after 2025 – these are mostly the individual tax provisions.  The key ones for small businesses include the 20% deduction on business income, Section 179 expensing improvements, lower rates on the individual side and a host of other provisions that will impact the entrepreneur’s ability to hold onto their capital (whether personal or business related) to reinvest in their business.  For small business c-corps, the 21% rate and elimination of corporate AMT are permanent, as are changes impacting the modernization of our international tax system.

SBE Council is starting a dialog now with members of Congress and the Administration on how to address these expiring provisions and what needs to be done to simplify the code, which should include: vastly lowering individual rates, repealing the death tax, lowering or eliminating capital gains taxes, permanent expensing and other reforms to fully boost U.S. competitiveness and create the most simple, business-friendly tax system in the world.

Immediate Improvements

SBE Council is a strong supporter of the Small Business Tax Simplification Act, H.R. 3717, a bipartisan bill produced by the House Small Business Committee.  Chairman Steve Chabot (R-OH) and Ranking Member Nydia Velazquez (D-NY) requested that House Ways and Means Chairman Kevin Brady (R-TX) include the measure as part of the tax reform legislation moving through the House last year.  SBE Council also pushed for its inclusion in the TCJA. Unfortunately, those efforts came up short.  We will be looking for opportunities and vehicles to advance the legislation in 2018.

The bill would make significant and positive changes for our nation’s entrepreneurs. It includes simple and common sense fixes that reduce costs, complexity and uncertainty for small businesses.  H.R. 3717:

● Modernizes thresholds for self-employment income and Form 1099-Misc filings (the latter of which aligns with 1099k reporting requirements)

● Aligns quarterly reporting deadlines

● Allows business owners to both offer and participate in cafeteria plans

● Allows a deduction for certain health insurance costs for self-employment tax purposes

● Allows voluntary withholding agreements and training services between contractors and “gig” entrepreneurs without impacting worker classification

● Creates uniform standards for the use of electronic signatures

See SBE Council’s support letter for H.R. 3717 here.

SBE Council testified in support of H.R. 3717 before the House Small Business Committee on October 4, 2017.  Read the testimony here.

Building on TCJA’s Momentum and Success

The TCJA will be a powerful package for our economy and small business, but it came up short for entrepreneurs and small businesses with regard to advancing simplicity.  Congress and policy leaders also need to begin addressing the temporary provisions that expire.

Congress, and the House Ways and Means Committee in particular, will continue to stay active on tax compliance initiatives. For example, on January 30, the committee will host a “Member Hearing Day” to listen to individual House members on legislation they have proposed to improve tax administration.  SBE Council will also encourage President Trump and the next IRS Administrator to take administrative actions, where allowed by law, to update tax provisions (for example, indexing capital gains for inflation) that promote fairness, reduce compliance costs and help the IRS run more efficiently.

From SBE Council’s perspective, the TCJA is only the beginning for reforming our nation’s tax system.  Compliance costs, burdensome tax payments and complexity will remain and big issue for small businesses and entrepreneurs, and SBE Council will continue to push for positive changes that provide relief, certainty and encourage small business growth and success.

Karen Kerrigan is president & CEO of the Small Business and Entrepreneurship Council  

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