I had the privilege and honor to be one of 18 small business owners from across the country to participate in the Senate Finance Committee’s Small Business Roundtable yesterday.
Convened by the senior tax policy advisors of the Senate Finance Committee’s two chairmen, Senators Max Baucus (D-Montana) and Orrin Hatch (R-Utah), it was their desire to learn how tax policy helps, hurts, and influences small business owners.
The meeting was held in the Dirksen building of the Finance Committee room with the big elevated dais under the Senate seal. We were sitting around a rectangular set of tables on the floor of the chamber with the staffers on one side and the business owners around the other three.
Rather than politicians, these were the senior staffers of the Senators and were the people actually responsible for understanding the issues and writing the legislation that gets passed.
Unlike the political rancor by their bosses the last few months, these people from both parties were sincerely interested in crafting legislation that would benefit small businesses. After all, every politician has small business constituents, and wants to help us create more jobs. They were also delighted to hear our perspective which is very different from the interests of large and multinational businesses that dominate lobbying efforts on Capitol Hill.
Led by Holly Porter and Jim Lyons, we discussed how tax policies impact our businesses and what we would like to change. The meeting lasted for three hours and was very interesting. It was a nice cross-section of American businesses. The 18 businesses came from 11 states. Among us, three were technology firms, there were a few manufacturing companies, retailers, industrial services, and professional services firms. Most of the firms, like FMS, have been around for decades.
Because of the diversity, different businesses wanted and needed different types of tax legislation, but overall there was general agreement:
- Business owners are too busy trying to generate revenue and deliver services to focus too much on tax policy and special credits or incentives.
- The tax code is too complicated and no one understands what’s in it. Our accountants file our taxes and whatever benefits or credits exist, we may capture them if we’re lucky, but well after the decisions were made. As a group, we’d prefer lower tax rates with fewer deductions.
- The cost of compliance is too high and too complicated. Personally, I’d like to see a national sales tax and never have to file a tax return again. After all, companies use government services even if they don’t make a profit — or a profit in the United States. Just dreaming here….
- The incentives added to the tax code get changed so often that they are hard to know and use. There were requests to have whatever policies implemented to be permanent or at least have a three-year life so that people can understand and actually make decisions to use them. The staff immediately mentioned this wasn’t possible because today’s Congress can’t constitutionally obligate a future Congress. Hopefully they’ll recognize the maybe you have it or maybe you don’t legislation doesn’t help businesses with long-term planning.
- Due to significant changes in income or losses from year to year, and investment/sales cycles that don’t fit neatly in a fiscal year, it would be desirable to average income across multiple years. That would be fairer and more aligned to long-term growth in a progressive tax system that assumes relatively level annual incomes.
- For more asset intensive businesses, the small business rules (Section 179) for immediate expensing of equipment that would otherwise be depreciated is important for cash flow and creating jobs. For those who aren’t familiar with this, when businesses purchase certain “long-life” equipment, the amount paid can’t be immediately deducted from income and have to be deducted and depreciated over time. The problem is that the company has to pay taxes on income which doesn’t deduct all the money spent on the equipment. Basically, you have to pay taxes on income that was never received. Section 179 helps with that. While in our firm, hardware is a small portion of our expenses so the impact is minimal either way, in manufacturing, it’s often critical. Personally, I’ve always hated the idea of paying taxes on money that wasn’t received even though you make it up in the following years. Just seems unfair when one is investing in the future of our people and company.
- Finally, there was a sense that no matter what legislation is passed, the big multi-national corporations are the primary beneficiaries of all the deductions with their teams of lawyers and accountants. And that small businesses end up footing the bill. Why should we pay higher taxes than General Electric? Far better to reduce the complexity and deductions, and give us a lower tax rate. There was also a general sense that large companies aren’t paying their fair share, shipping jobs overseas, and not investing in the local economies. One gentleman suggested that there should be preferential capital gains tax rates for investments directly in real businesses versus financial speculation on the stock markets. Makes sense to me.
They asked us if there was anything they could do with tax law to directly decrease unemployment and we didn’t offer many suggestions. In fact, the feedback was overwhelmingly negative on some of the attempts to improve employment such as the HIRE Act and reducing employee FICA taxes. They were considered to have zero impact on any hiring decisions. The consensus was that we need increased demand for our products and services, and that we’ll create jobs if we see opportunities to increase profits. Unfortunately, that may beyond the power of tax legislation. Anything they can do to reduce the complexity of compliance and tax rates would be welcome.
Overall, it was a great experience to meet the people who craft the legislation we live under, and help them better understand what really impacts our businesses. I’m glad to see they reached out to small business owners and hope they’ll do what they can to help us remain competitive and successful.