Make tax code less costly and complicated for small businesses

It has been more than 30 years since Congress passed a major reform of our tax laws. Since then, the federal tax code has become more and more complex, frustrating small businesses and middle-class families every year.

The President and Congressional Republicans released a plan to overhaul and rewrite our country’s tax system and indicated they will use the same rushed process tried during the partisan health care debate. A better way forward is to seek real, bipartisan compromise through an open process that allows for hearings and input from the American people.

One area where we should be able to find agreement is around small businesses. New Hampshire is a small business state. Our Main Street businesses drive the economy and create the majority of new jobs. For New Hampshire small businesses, tax reform is a real opportunity to help them focus more on what they do best.

Recently, I joined the chairman of the U.S. Senate Committee on Small Business & Entrepreneurship, Sen. Jim Risch, R-Idaho, to urge Congressional tax-writing committees to make small businesses a priority by focusing on the number one complaint I hear about taxation from small businesses: complexity.

For entrepreneurs, time is one of their most valuable resources. Every wasted hour spent filling out forms or navigating confusing tax rules is an hour they do not spend innovating, marketing and growing their businesses.

The tax system is so difficult to navigate that 89 percent of small businesses turn to outside tax preparers to fill out their forms and file their returns. Without a team of accountants, the compliance burden for small businesses is 67 percent higher than it is for large businesses and costs $18 billion annually.

According to the National Taxpayers Advocate Service, small businesses are spending 2.5 billion hours to comply with tax laws every year.

A small business owner and tech entrepreneur in Lebanon, N.H., told me his company is regularly confused by how to comply with the tax system. “This isn’t about paying less taxes. This is about spending less time and energy on taxes, and knowing we’re doing them right!”

At a recent Small Business Committee hearing I led with Chairman Risch, experts outlined two straightforward reforms to reduce complexity for small businesses.

First, permit small businesses to immediately deduct the cost of investing in their business. Those savings can be promptly reinvested rather than spread over a lengthy depreciation schedule and would eliminate the costly paperwork and record keeping burden of multiyear depreciations.

Second, permit more small businesses to use a simpler form of business accounting. This bookkeeping change would also streamline the record keeping costs for small businesses and more accurately reflect their expenses.

At our hearing, we also considered calls to lower income tax rates on pass-through entities that file on the individual side of the tax code. While the vast majority of small businesses organize as pass-throughs, there are some wealthy individuals who use it as a loophole to avoid paying their fair share of taxes. 

This is why we believe tax reform should include safeguards to prevent abuse and ensure that any changes to pass-throughs benefit truly small businesses.

Unlike the partisan and chaotic effort to repeal health care, the tax debate should unfold in full view of the public, with hearings, bipartisan cooperation and a chance for citizens to comment. Bipartisan cooperation also makes for better tax policy. Under Congressional budget rules, any changes made to the tax code in a partisan fashion will last for 10 years, creating the kind of uncertainty for small businesses that we should be eliminating.

There is an opportunity to come together to reduce the tax burden on small businesses in a fiscally responsible way that does not create opportunities for the wealthy or well-connected to game the system and abuse the tax code.

If we do this right, a modernized, streamlined tax system will encourage economic growth and competitiveness and help small businesses focus on what they do best: creating jobs and supporting local economies.

U.S. Sen. Jeanne Shaheen, D-NH, is the ranking Democrat on the Senate Committee on Small Business & Entrepreneurship.