Committee leaders: Tax reform should benefit small businesses
The leaders of the Senate Small Business and Entrepreneurship Committee are urging their colleagues to make sure that any tax-reform legislation taken up by the Senate improves the tax code for small businesses.
"Small businesses are the backbone of our economy, creating two out of every three net new jobs in the United States," Committee Chairman Jim Risch (R-Idaho) and ranking member Jeanne Shaheen (D-N.H.) said in a letter Wednesday to the leaders of the Senate's tax-writing committee.
"That is why it is essential that any tax reform considered by the Senate take into account the unique burden that the federal tax code imposes on small businesses and ensure that Main Street businesses benefit from tax reform," they wrote.
The letter comes after congressional GOP leaders and Trump administration officials released a statement last week outlining broad goals for tax reform. That statement called for a "lower tax rate for small businesses so they can compete with larger ones."
Most small businesses are "pass-through" businesses whose income is taxed through the individual tax code on their owners' returns. Republicans have said they want to lower tax rates for both corporations and pass-through businesses. But a challenge for policymakers will be moving to prevent wealthy individuals from taking advantage of the lower rate for pass-through companies to avoid taxes.
Risch and Shaheen said that it's important for tax writers "to keep in mind that small businesses do not stand to benefit significantly from corporate-only changes." But they also said that "any reforms to the individual side of the code should focus on benefitting truly small businesses, and any potential preference for pass-through business income must include appropriate safeguards in order to prevent abuse and mischaracterization of income."
Additionally, the Small Business Committee leaders said a tax bill should reduce the tax code's complexity for small businesses.
"A simpler tax code that is easier to navigate would allow small businesses to refocus time and resources spent on compliance into growing and expanding their businesses," Risch and Shaheen said.
The senators pointed to two provisions in the current tax code that witnesses at a recent hearing said should be preserved and potentially expanded to decrease tax complexity.
One of those provisions, known as "Section 179 expensing," allows small businesses to immediately write off capital investments. The other provision allows small businesses making less than $5 million to use a simpler accounting method.
