PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

SBE Council Strongly Supports “Small Business Jobs Act” & “Build It in America Act”

By at 12 June, 2023, 12:34 pm

The Honorable Jason Smith

Chairman

Ways and Means Committee

U.S. House of Representatives

Washington, D.C. 20515

 

The Honorable Richard Neal

Ranking Member

Ways and Means Committee

U.S. House of Representatives

Washington, D.C. 20515

 

Dear Chairman Smith and Ranking Member Neal:

America’s entrepreneurs and small business owners continue to be challenged by various headwinds that are draining them of their capital to successfully operate their businesses and navigate an array of competitive and marketplace dynamics. Particularly now, U.S. small businesses need policies that support and encourage risk-taking, investment and capital formation, which is why the Small Business & Entrepreneurship Council (SBE Council) strongly supports the “Small Business Jobs Act” (H.R. 3937) and “Build it in America Act” (H.R. 3938).

SBE Council urges all Ways and Means Committee members to vote in favor of these important bills.

According to SBE Council’s recent “Small Business Checkup Survey,” 55% of small business owners report that revenues have not kept pace with inflation, 57% are cutting back on business spending, 73% report that inflation is having a negative impact on operations, and 25% rate their odds for survival over the next two years as only “fair” – that means more than 8 million local businesses are threatened with the possibility of closure if economic and business conditions do not improve.

Both H.R. 3937 and H.R. 3938 offer significant relief and investment incentives that will positively impact the financial outlook for small businesses across the country. This will boost the certainty and confidence that are needed to drive investment and entrepreneurship.

Important Fixes and Reforms to IRS Reporting: SBE Council has long supported updating the $600 reporting threshold, which has not been adjusted since 1954. Raising the threshold to $5,000 is a reasonable measure that will relieve small businesses and new startups of burdens and costs. Moreover, it will help to promote efficiency within the IRS. Repealing the new 1099-K reporting threshold of $600 will do the same, and ensure a nightmarish complexity ensuing from the implementation of this requirement never takes place for millions of taxpayers, independent contractors and small businesses.

Enhancing and Restoring Important Expensing and Investment Incentives: As noted above, small business owners are cutting back on their business spending and investments. In addition, 55% report that it is much harder to find or obtain capital for their firms’ operation or growth than just six months ago.  Providing business owners with the tools and capacity to reinvest business revenues, particularly given the fact that they have less capital due to the drain of inflation, would provide a pathway for growth and survival. That is why SBE Council strongly supports increasing small business immediate expensing to $2.5 million, restoring immediate R&D expensing, extending 100% bonus depreciation, extending interest deductibility, and making smart changes to the Qualified Small Business Stock (QSBS) Gain Exclusion.

With regard to the need to restore immediate R&D expensing, SBE Council has found that the financial hit for small businesses will be quite severe if the provision is not restored. For example, the median “tax hit” for small businesses that use this incentive amounts to a 32% increase in their tax bill, according to SBE Council’s newly released survey on “Emerging Technology, Innovation and Small Business.”  If not restored, the negative effects would deeply damage many of our most innovative small businesses. Already, that prospect is forcing a significant number of small businesses to cut back and spend their time and resources on less productive survival strategies such as borrowing money to pay the new tax bill – 35% of small business owners report they will need to so. Other impacts include: holding off profit sharing for employees, decreasing investment in future innovations, scaling-back hiring plans, reducing employee benefits, laying off employees, and forgoing compensation for the owners or founder. Alarmingly, 19% report that their firm may go out of business if R&D expensing is not restored.

Furthermore, at a time when traditional financing methods and fund raising have become more restrictive due to tighter lending standards and increasing capital costs (and a riskier economic environment in general) encouraging investors to help entrepreneurs launch their ideas and scale those innovations to their greatest potential would yield important outcomes for our economy. This is critical, as we continue to work toward economic recovery and as the U.S. competes against China and other nations in the race for innovative superiority.

Making small changes to Section 1202 of the federal tax code, also known as the Qualified Small Business Stock (QSBS) Gain Exclusion, as called for in the legislation, will unleash more capital and recycle that capital more quickly through our economy. The provision the committee will consider accomplishes this by calibrating holding periods to qualify for a scaled capital gains exclusion up to 100% and expanding eligibility to more small businesses.

H.R. 3937 and H.R. 3938 will give entrepreneurs and small businesses a boost of capital, relief and critical support, which will lead to improved confidence. When small business owners confidently invest in their businesses, our entire economy and thousands of local economies benefit. SBE Council applauds the Ways and Means Committee for listening to entrepreneurs and small business owners, and moving forward with these legislative measures. Please do not hesitate to contact SBE Council if we can be of further assistance to your efforts.

Sincerely,

Karen Kerrigan, President & CEO

cc: Ways and Means Committee members.

 

 

 

 

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