This year, a number of tax proposals have been offered in Congress to fix specific sections of the tax code that hold back small businesses. The Senate Finance and House Ways and Means committees have worked hard to lay out a vision for tax reform that incorporates ideas from individual members and businesses through a series of working groups.
Just last week, House Ways and Means Committee Chairman Rep. Kevin Brady announced that the committee will release a blueprint for tax reform in June. With so many competing proposals addressing every facet of our tax code, it is becoming increasingly clear that a comprehensive tax reform package is the only realistic way to achieve the shared goals of all American businesses.
To help Congress refocus on fundamental tax reform, the Family Business Coalition is launching an “All In for Tax Reform” initiative, recommending specific reforms that will help America’s family owned and operated businesses expand and pass to the next generation of business owners.
Small family owned business owners face challenges when working to keep the doors open that do not come and go during tax season. Beyond worrying about balancing the books, planning inventory, and staying late to sweep up the shop floor, many business owners handle their own bookkeeping which means grappling with complicated state, local, and federal taxes all year long. The IRS estimates Americans spend 6.6 billion hours per year filling out tax forms—including 1.6 billion hours on the 1040 form alone.
Businesses come in many shapes and sizes; tax reform should lower the business tax burden across the board to help all job creators. The tax most often decried by economists as holding back job creation is the corporate tax, which at 35% is among the highest in the world – consequently pushing businesses and jobs overseas. While it’s important that the corporate rate be made more competitive globally, it’s imperative that every part of our tax system be on the table when addressing reform.
For many family businesses, especially farms, the value of the business is tied up in land and equipment, meaning they lack the cash on hand to pay the death tax upon the death of a business owner. When a surviving family does not have the liquid cash to pay the death tax, they must sell off land and equipment, lay off workers, and in the worst cases close the business altogether to pay the tax. Family businesses that have worked an entire lifetime to save for the next generation should not have to fork over 40 percent of the farm to Uncle Sam simply because a business owner has died.
House Speaker Paul Ryan and Ways and Means Chairman Kevin Brady deserve credit for inviting family business owners and farmers to tell their stories during a subcommittee hearing on the death tax last April. Shortly after, the House passed the first death tax repeal bill in ten yearson a bipartisan basis. With the goal of spurring Senate action, the Family Business Coalition spearheaded a coalition letter that was signed by 112 trade associations and advocacy organizations urging the Senate to take up the House’s death tax bill this year. No one should have to visit the grim reaper and tax man in the same day, especially after already paying taxes on their small businesses during an entire life.
Maintaining and expanding access to capital for small businesses should also remain a priority for tax writers. Start-up small businesses like tech companies depend on sweat equity investors who currently pay the capital gains rate on their partnership’s management profit share, known as carried interest. Tax reform should also protect the ability for small business to grow by seeking outside investors and make access to capital easier.
In addition to lowering tax rates across the board for businesses, comprehensive reform should include full business expensing. Creating full business expensing would allow a business to purchase more equipment and invest with more certainty in the future of the business. Lawmakers from both parties have already taken an important step by passing a permanent extension of section 179 business expensing at the end of last year.
There is still plenty of time in 2016 for Congress to refocus on moving forward with comprehensive tax reform. Presidential candidates, given their national spotlight, should also discuss their plans to help small businesses succeed. Our members across the country hope that Congress, and the next President, will embrace an “all in” approach for fundamental tax reform that brings down rates for all businesses, repeals the job-killing death tax, and simplifies the code for hard working family business owners. While Congress continues to lay the groundwork for comprehensive tax reform, family businesses across the country are waiting to invest in America’s future.
Palmer Schoening is chairman of the Family Business Coalition in Washington D.C. – a diverse collection of organizations and industry groups united for the common purpose of protecting America’s family businesses across the country.