    [House Hearing, 115 Congress]
    [From the U.S. Government Publishing Office]

     SMALL BUSINESS TAX REFORM: MODERNIZING THE CODE FOR THE NATION'S JOB
                                    CREATORS

    =======================================================================

                                    HEARING

                                   before the

                          COMMITTEE ON SMALL BUSINESS
                                 UNITED STATES
                            HOUSE OF REPRESENTATIVES

                         ONE HUNDRED FIFTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                  HEARING HELD
                                OCTOBER 4, 2017

                                   __________

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                Small Business Committee Document Number 115-037
                  Available via the GPO Website: www.fdsys.gov

                                       ______

                             U.S. GOVERNMENT PUBLISHING OFFICE

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                       HOUSE COMMITTEE ON SMALL BUSINESS

                          STEVE CHABOT, Ohio, Chairman
                                STEVE KING, Iowa
                          BLAINE LUETKEMEYER, Missouri
                              DAVE BRAT, Virginia
                 AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
                            STEVE KNIGHT, California
                            TRENT KELLY, Mississippi
                                 ROD BLUM, Iowa
                             JAMES COMER, Kentucky
                     JENNIFFER GONZALEZ-COLON, Puerto Rico
                              DON BACON, Nebraska
                        BRIAN FITZPATRICK, Pennsylvania
                             ROGER MARSHALL, Kansas
                          RALPH NORMAN, South Carolina
                   NYDIA VELAZQUEZ, New York, Ranking Member
                           DWIGHT EVANS, Pennsylvania
                           STEPHANIE MURPHY, Florida
                            AL LAWSON, JR., Florida
                             YVETTE CLARK, New York
                              JUDY CHU, California
                           ALMA ADAMS, North Carolina
                          ADRIANO ESPAILLAT, New York
                            BRAD SCHNEIDER, Illinois
                                     VACANT

                   Kevin Fitzpatrick, Majority Staff Director
          Jan Oliver, Majority Deputy Staff Director and Chief Counsel
                         Adam Minehardt, Staff Director

                                C O N T E N T S

                               OPENING STATEMENTS

                                                                       Page
    Hon. Steve Chabot................................................     1
    Hon. Nydia Velazquez.............................................     2

                                   WITNESSES

    Ms. Kristie Arslan, Entrepreneur-In-Residence and Small Business
      Counsel, Small Business & Entrepreneurship Council, Vienna, VA.     5
    Ms. Taylor Wyatt, President, MotionMobs, Birmingham, AL..........     7
    Mr. Miguel Centeno, Partner, Shared Economy CPA, Redondo Beach,
      CA.............................................................     8
    Ms. Caroline Bruckner, Managing Director, Kogod Tax Policy
      Center, Executive-in-Residence, Accounting and Taxation, Kogod
      School of Business, American University, Washington, DC........    10

                                    APPENDIX

    Prepared Statements:
        Ms. Kristie Arslan, Entrepreneur-In-Residence and Small
          Business Counsel, Small Business & Entrepreneurship
          Council, Vienna, VA........................................    24
        Ms. Taylor Wyatt, President, MotionMobs, Birmingham, AL......    28
        Mr. Miguel Centeno, Partner, Shared Economy CPA, Redondo
          Beach, CA..................................................    33
        Ms. Caroline Bruckner, Managing Director, Kogod Tax Policy
          Center, Executive-in-Residence, Accounting and Taxation,
          Kogod School of Business, American University, Washington,
          DC.........................................................    36
    Questions for the Record:
        None.
    Answers for the Record:
        None.
    Additional Material for the Record:
        ADA - American Dental Association............................    44
        lyft.........................................................    46
        Small Business Council of America Statement..................    47
        Statement of Aumua Amata Coleman Radewagen, Member of
          Congress...................................................    50
        UZURV Holdings, Inc..........................................    51

     SMALL BUSINESS TAX REFORM: MODERNIZING THE CODE FOR THE NATION'S JOB
                                    CREATORS

                                  ----------

                           WEDNESDAY, OCTOBER 4, 2017

                      House of Representatives,
                   Committee on Small Business,
                                                        Washington, DC.
        The Committee met, pursuant to call, at 11:00 a.m., in Room
    2360, Rayburn House Office Building. Hon. Steve Chabot
    [chairman of the Committee] presiding.
        Present: Representatives Chabot, Luetkemeyer, Brat, Knight,
    Blum, Comer, Bacon, Marshall, Norman, Velazquez, Evans, Murphy,
    Lawson, Clarke, and Schneider.
        Chairman CHABOT. We want to tell everybody we appreciate
    them being here today. Before we begin, I wanted to briefly say
    this Committee continues to track the recovery efforts
    conducted by the SBA as a result of the hurricanes in Texas,
    Florida, and Puerto Rico. Those impacted are in our thoughts
    and our prayers. They have a long road to recovery and this
    Committee stands ready to assist the administration in any way
    possible.
        Returning to today's hearing topic, I want to thank you all
    for being here this morning. As the discussion surrounding tax
    reform echo in the capital, it is paramount that part of the
    conversation involves the job creators themselves, the
    startups, the entrepreneurs, and the small businesses that
    transform Main Streets all across America. Too often these
    small businesses are at a disadvantage. Beyond overbearing
    regulations and healthcare issues that seem insurmountable, the
    United States Tax Code consistently puts obstacles in front of
    small businesses. Instead of dedicating time and resources to
    creating the next big idea, small business owners must spend
    inordinate amounts of time just figuring what they owe the IRS.
        Not only does the Tax Code provide complexity and
    uncertainty to the Nation's 29 million small businesses, but it
    also simply has not kept pace with modern technology.
    Innovation is changing how companies do business and how they
    are interacting with customers. The sharing economy is
    transforming how businesses operate, from food delivery to
    locating a contractor to work on your home, the advanced
    digital economy is building momentum.
        However, as the technology revolution changes business
    ecosystems, the Tax Code continues to hold small businesses
    back. That is why the ranking member and I introduced H.R.
    3717, the Small Business Owners Tax Simplification Act of 2017,
    to update the Tax Code for all the Nation's small businesses,
    entrepreneurs, and startups. H.R. 3717 aims to update the Tax
    Code by simplifying and modernizing approximately a dozen
    provisions such as realigning estimated payment deadlines and
    aligning the tax filing thresholds of the Form 1099-MISC and
    Form 1099-K forms.
        Moreover, H.R. 3717 will finally address the cafeteria plan
    issue that many small business owners face. While they can
    offer cafeteria benefit plans to their employees, such as
    health savings accounts, too many owners cannot participate
    themselves. H.R. 3717 allows small business owners to both
    offer and participate in these pre-tax benefits. With the
    flexibility of the sharing economy driving some businesses,
    defining a worker versus an independent contractor versus an
    employee is critical. H.R. 3717 provides clarification as
    businesses navigate these important decisions by allowing
    companies to enter into voluntary withholding agreements and
    offer voluntary training without impacting worker
    classifications. While not exhaustive, H.R. 3717 is the result
    of multiple hearings and research, and it is a step in the
    right direction to providing equity for the Nation's small
    businesses.
        Today, we will discuss how the Tax Code impacts small
    businesses and how proposed changes, like those outlined in
    H.R. 3717 could impact the Nation's job creators.
        I appreciate all the witnesses for being here today, and as
    Congress debates comprehensive tax reform, your thoughts and
    opinions could not be more timely.
        I am looking forward to your testimony, and I would now
    like to yield to the ranking member, Ms. Velazquez, for her
    opening remarks.
        Ms. VELAZQUEZ. Thank you, Mr. Chairman.
        I would like to start by expressing my deepest condolences
    to all those harmed and impacted by the shooting in Las Vegas.
    I also want to thank all the first responders and medical
    personnel that responded so quickly. And I want to also thank
    the chairman and echo his comments regarding the hurricane
    victims, and I am glad to hear your willingness to help.
        Main Street is the heart of our economy and a better tax
    code will help it beat stronger. American small businesses have
    outgrown the tax code thanks in part to ever-changing
    technology and new forms of businesses. Small firms are a
    unique phenomenon because they do not fall neatly into our tax
    code. Some are taxed at corporate rates and others at
    individual rates. Some receive great benefits from provisions
    like Section 179 expensing. Others find more value in the
    startup deduction. These differences matter when we talk about
    small business tax reform. Unfortunately, not everyone
    understands such nuances. That was made abundantly clear by the
    framework released last week by the administration under
    Republican leadership. That plan ignores the fact that
    approximately 86 percent of pass-through entities are already
    taxed at rates lower than 25 percent, though we do not have a
    clear picture of exactly what incentives will be removed from
    the tax code to help pay for this costly plan. We do know that
    many of them will be at the expense of small firms.
        That is why today's hearing is so timely. It not only gives
    us the opportunity to discuss tax reform from the perspective
    of small employers, it gives this Committee a chance to show
    how real bipartisanship can help firms thrive. I have had the
    pleasure to work with the chairman on H.R. 3717, the Small
    Business Owners Tax Simplifications Act of 2017, and believe it
    does what the administration's framework did not, provide
    thoughtful modifications to simplify the code for our nation's
    entrepreneurs. H.R. 3717 considers the changing nature of our
    economy by allowing for more flexibility for micro
    entrepreneurs in the sharing economy. It is important that as
    this technological revolution advances, government policy keeps
    pace and this is a first step.
        This bill also makes it easier for entrepreneurs to access
    healthcare and streamline reporting requirements. At first
    glance, these minor changes may not seem as important as
    lowering tax rates; however, they offer valuable targeted ways
    to give small employers what they have continually requested,
    simplicity and certainty.
        Yet, we could go a step further to improve the tax code for
    job creators as we work toward comprehensive tax reform.
    Congress should look at increasing the startup deduction, to
    offer benefits to entrepreneurs in the service industry, and
    encourage clean energy investment where small innovators are
    leading the way.
        But we cannot do this without input from small business
    owners. These entities are a vital part of that equation. It is
    my hope that today's hearing will allow us to start a dialogue
    and begin the bipartisan process of building a better tax
    framework for our country's small firms.
        On that note, I thank the witnesses for testifying and
    providing their valuable perspective. I yield back the balance
    of my time. Thank you, Mr. Chairman.
        Chairman CHABOT. Thank you very much. The gentlelady yields
    back.
        And if Committee members have opening statements prepared,
    I would ask that they be submitted for the record.
        And I would like to take just a moment to explain our
    lighting system and our timing system. Some of you have
    testified before and are familiar with this, but we basically
    operate under the 5-minute rule. You each get 5 minutes to
    testify. There is a lighting system to help you there. The
    yellow light will come on after 4 minutes and let you know you
    have a minute to wrap up and then the red light comes on. We
    would ask you all to stay within that timeframe if at all
    possible. And we also operate by the 5-minute rule, so we will
    ask questions after you are done and we will go back and forth
    between Republicans and Democrats.
        And before I introduce our distinguished panel, I would
    like to recognize somebody who is here. I happen to have three
    of my college football buddies who are coming to town today,
    one of their wives and somebody else. And one of them is here
    in this room today. We were roommates our second year. His name
    is Bob Booth and he was a small business person in the travel
    industry. Bob, why do you not you stand up? Let's hear it for
    Bob Booth. All right.
        Ms. VELAZQUEZ. Was he a good player?
        Chairman CHABOT. New Yorker. Better high school player.
        Bob and I were roommates our second year at William and
    Mary and the guy I was my roommate my first year is also coming
    and his wife. And after my wife and I got married, we have been
    roommates for 44 years now. So there you go.
        So our first witness here on the panel will be Kristie
    Arslan. Ms. Arslan is the small business counsel and the
    entrepreneur-in-residence at the Small Business and Enterprise
    Council. She previously served as executive director of Women
    Impacting Public Policy and president and CEO of the National
    Association of the Self-employed. Ms. Arslan is also the owner
    of Popped! Republic, a small business popcorn company in
    Virginia. We appreciate you being here today.
        And we would also like to introduce the second witness who
    is Taylor Wyatt. Ms. Wyatt is the president of MotionMobs, a
    small custom design and application developer in Birmingham,
    Alabama with six employees. Ms. Wyatt is very active on
    numerous boards in the Birmingham area and on the verge of
    launching a new startup. We thank you also for joining us here
    today and I hope that you will share with the Committee a
    little bit more about your new venture.
        And I would now like to yield to Ms. Velazquez to introduce
    our second two witnesses.
        Ms. VELAZQUEZ. Thank you, Mr. Chairman. It is my pleasure
    to introduce Mr. Miguel Centeno, partner of Shared Economy CPA.
    After 6 years as a tax consultant, he left management at a Big
    Four accounting firm to provide consulting services to micro
    entrepreneurs. Shared Economy CPA provides tax preparation
    services to 1099 independent contractors and those working in
    the sharing economy. Mr. Centeno, is an enrolled agent and
    represents taxpayers before the IRS and the U.S. Tax Court. He
    holds a B.S. in Economics and B.A. in Political Science and
    Government from Loyola Marymount University. Welcome.
        And then I will introduce----
        Chairman CHABOT. Sure.
        Ms. VELAZQUEZ. And it is my pleasure to introduce Ms.
    Caroline Bruckner, managing director at the Kogod Tax Policy
    Center and Executive in Residence for Accounting and Taxation
    at the Kogod School of Business at American University. In this
    role, she has worked to release groundbreaking research on tax
    challenges facing the sharing economy and female entrepreneurs.
    Prior to her work, Ms. Bruckner was chief counsel for the
    Senate Committee on Small Business & Entrepreneurship and a
    senior associate at PricewaterhouseCoopers. She holds a law
    degree from George Mason University School of Law, a Tax LLM
    from Georgetown University Law Center, and a degree in
    Political Science from Emory University. Welcome.
        Chairman CHABOT. Thank you very much. You are all welcome.
    And Ms. Arslan, you are recognized for 5 minutes.

      STATEMENTS OF KRISTIE ARSLAN, ENTREPRENEUR-IN-RESIDENCE AND
       SMALL BUSINESS COUNSEL, SMALL BUSINESS & ENTREPRENEURSHIP
     COUNCIL; TAYLOR WYATT, PRESIDENT, MOTIONMOBS; MIGUEL CENTENO,
       PARTNER, SHARED ECONOMY CPA; CAROLINE BRUCKNER, MANAGING
      DIRECTOR, KOGOD TAX POLICY CENTER, EXECUTIVE-IN-RESIDENCE,
      ACCOUNTING AND TAXATION, KOGOD SCHOOL OF BUSINESS, AMERICAN
                               UNIVERSITY

                      STATEMENT OF KRISTIE ARSLAN

        Ms. ARSLAN. Thank you. Thank you, chairman, ranking member
    and all of the members of the Committee for allowing me to be
    here today to talk about this important issue. I am here today
    on behalf of the Small Business Entrepreneurship Council. I am
    currently their entrepreneur-in-residence, and as mentioned, I
    am also the co-owner of Popped! Republic Gourmet Popcorn, a
    gourmet popcorn company that I started with my husband about 5
    years ago. So I always like to say I took all of my expertise
    and I now am an actual small business owner.
        AS many of you know, SBE Council has been around for over
    25 years advocating on behalf of small businesses. We are an
    advocacy, education, and research organization, and we really
    work to create an ecosystem that allows for both entrepreneurs
    and small businesses to start and grow. We have a nationwide
    network of over 100,000 members, and tax reform, as you know,
    is one of the top issues that are facing all of our members and
    small businesses at large at all phases of their business
    lifecycle. And working on tax reform will have a positive
    impact on the economy and their businesses.
        I always say, you know, in my time both as a policy expert
    and also now as a small business owner working with a lot of
    other small business owners, the great unifier amongst
    businesses big and small is their ire for the U.S. Tax Code,
    and also the anxiety derived from three simple words, the IRS.
    You can talk to any business. I have talked to businesses big
    and small and their biggest fear is getting a letter that says
    IRS on it.
        We really believe that the U.S. needs to look at the Tax
    Code and focus on creating a Tax Code that will encourage
    investment and growth, that fosters new business creation, and
    also alleviates the excessive compliance burden that costs
    businesses a lot of time and a lot of money. And we think that
    there are three key ways to accomplish this. First, tax reform,
    tax simplification, and also, tax cuts.
        I will first start talking a little bit about tax
    simplification and tax reform. I know you are all well versed
    in the Tax Code. There is over 2.4 million words in the Tax
    Code. It is so overwhelming I know for me as a business owner
    to try and figure out what I need to do reliably to comply with
    the Tax Code and ensure I am meeting all of those rules and
    regulations so that I do not miss something or are faced with a
    huge tax bill at the end of the day. And again, for the
    smallest businesses among us, our business, we have nine
    employees and then my husband and I, so 11 total. We cannot
    afford a fancy CFO. We cannot afford a full-time accountant on
    staff. We do not have someone telling us here is what you need
    to do or how to structure your business so you can maximize the
    tax code and tax benefits. We do not have someone monitoring
    small business tax policy or new rules coming down the pike
    that can forewarn us about how we need to do something. We are
    often left being reactive like many other small business owners
    when we would love to be proactive when it comes to taxes and
    tax regulations. And so we think that the current Tax Code
    really disadvantages small businesses and new entrepreneurs and
    we would like to see that change.
        Again, on top of the compliance burden, the Tax Code really
    has not kept pace with our changing economy. Technology has
    been a game changer. All of you know this. We will be talking
    about the shared economy. But it has been a game changer in
    terms of the way we do business even in my little small gourmet
    popcorn company. With ecommerce, the exposure of ecommerce in
    the sharing economy, people have different types of jobs. There
    are different types of businesses out there. And we really need
    policymakers to make changes to the tax code that will really
    bring it into the 21st century. I think that is why your bill
    is so important. The Small Business Owners Tax Simplification
    Act really begins to take that step to simplify and also
    modernize based on what is truly going on out there in the
    economy. It brings a lot of much needed simplification.
        I just want to highlight a few provisions that are going to
    be very important for small business owners. One, increasing
    the dollar thresholds required for filing 1099 forms from $600
    to $1,500 is going to be of massive help to small business
    owners. It automatically for our business will cut our filing
    in half. So it will really help alleviate some of that
    compliance burden and paperwork burden on businesses and also
    kind of keeps pace with what is going on out there with the
    sharing economy. So I think that change will have a massive
    impact on the small business community. Aligning quarterly
    reporting requirements, something so simple but just helps us
    with planning better for small businesses will make a big
    difference. And I think also allowing business owners to both
    offer and participate in cafeteria plans would mitigate a lot
    of compliance challenges, but also, more importantly,
    considering this healthcare climate would really help expand
    coverage and benefit offerings in a lot of small businesses out
    there. So all those are great provisions, amongst a whole other
    host of provisions I think will be beneficial. So we are really
    pleased to support that bill.
        Additional recommendations I have on that front is that
    having----
        Chairman CHABOT. I will tell you what. Maybe we will get to
    those in your questions if it is okay.
        Ms. ARSLAN. Sure. Sure.
        Chairman CHABOT. If you could just wrap up.
        Ms. ARSLAN. Sure. But things like looking at self-
    employment taxes and the threshold for that. Expanding HRAs
    would also be a benefit.
        And then I would like to just quickly address tax cuts. I
    know in this budget climate we are wanting to be smart, but I
    think small businesses really need to look at what can we do to
    allow them to keep more of our money. Businesses often use
    their own revenue to grow and so it is critically important
    that we are able to keep more of our money in order to take
    that next step moving forward.
        Chairman CHABOT. Thank you. We will get to the rest of it
    in the questions.
        Ms. ARSLAN. Thank you.
        Chairman CHABOT. Thank you very much.
        Ms. Wyatt, you are recognized for 5 minutes.

                       STATEMENT OF TAYLOR WYATT

        Ms. WYATT. Thank you, chairman, ranking member, and all
    members of the Committee for the invitation to testify today. I
    am really pleased to support H.R. 3717. My name is Taylor
    Wyatt, excuse me, and I founded a software consulting and
    development company in Birmingham, Alabama, 7 years ago.
        As both an entrepreneur and a consultant for small
    businesses, in my business, including startups in the sharing
    economy, this bill spoke to a lot of the impacts that it could
    have on my business and other businesses that I talk to every
    day.
        In my experience, the Tax Code is overly complicated.
    Without being an expert in Tax Code and dealing with it as the
    Committee does, it is very complicated to stop running your
    business just to figure out what you need to do to comply with
    these regulations.
        Our team has built several software products that touch,
    for example, payment processing components across state lines.
    And even trying to determine tax liability on goods and
    services sold across the state is very complex. And so those
    recommendations are really illustrative of our need to simplify
    things in the Tax Code and to make it easier for these
    businesses.
        As you know, small businesses create approximately 64
    percent of new private sector jobs. And the Tax Code really is
    not friendly for these small and medium-sized businesses. Like
    many businesses fewer than 10 employees, and even like Ms.
    Arslan mentioned with her Popped! Republic company, we do not
    have a department or even a person dedicated to tax filings.
    Making the process of paying taxes and making it more user-
    friendly for our team is really a great step in the right
    direction.
        The purpose of this bill as I understand it is to
    modernize, clarify, and simplify provisions that apply to small
    businesses, and these are really laudable goals that I hope
    will really broaden the tax reform conversation.
        A few provisions really stand out, based on my experience.
    Section 5 of the bill requires the IRS to perform a test to
    determine that a bank account belongs to the proper taxpayer
    before depositing a refund. Because tax fraud is so rampant,
    the IRS depositing a refund into the wrong account is
    unfortunately too common. Reclaiming the funds deposited into
    the wrong account takes a great deal of time and resources.
    Somehow, an instance a few years ago, shortly after I had
    started my business, I received the notice that a deposit had
    been made incorrectly into my own account. It was somehow
    corrected on its own, but if it had not been, that would have
    been a huge process just for me to figure out what has
    happened, to reach out to the right person, and to start taking
    the right steps to correct that issue.
        Another provision in this is the welcomed proposal and
    extension of the cafeteria plan benefits. This is extremely
    important for us. As our team of six, it actually excludes half
    of our company from currently participating in cafeteria plans
    with their ownership stake. So this would immediately change
    the nature of our company and how we could offer those plans to
    our team.
        The provisions, clarifying certain activities in the
    sharing economy that have an impact on the sharing economy is
    very important for us. We are getting ready to start a new
    startup called V2 Property Management Group and worker
    classification is such a huge part of the sharing economy
    currently and will affect us directly in this new startup. We
    are looking to hire workers on an as-needed basis to help
    manage buildings and to perform service tasks within those
    buildings. As part of that, we will be hiring a mix of both
    employees and independent contractors for those tasks, and our
    understanding of how these classifications work, how it impacts
    our business, especially as a startup so that we can
    appropriately project and prepare for funds is hugely
    important.
        But it is not just important to our business. Another
    business in our town, in Birmingham, Alabama, is a company
    called Shipt that has 250 employees and they have grocery
    delivery independent contractors now that they may want to
    offer voluntary training services to without impacting those
    classifications. They have 250 employees but they have
    thousands of employees when you include their independent
    contractors. And for us to do like Birmingham, you can imagine
    how that impacts our town, how it impacts the economic
    development, and we intend for V2 to play that type of role in
    our city and want to make sure that we really understand these
    classifications and just the impact that it is going to have.
        Thank you again for the opportunity to testify for this
    really important discussion and for you bringing it before us.
        Chairman CHABOT. Thank you very much.
        Mr. Centeno, you are recognized for 5 minutes.

                      STATEMENT OF MIGUEL CENTENO

        Mr. CENTENO. Good morning, Honorable Congressmen and
    Congresswomen. I just want to take a moment to thank you for
    having me. It is an incredible privilege as an individual, as
    well as a tax partner at a CPA firm for 1099 workers.
        Chairman CHABOT. Do not screw it up.
        Mr. CENTENO. Well, thank you for that.
        But most of all, I am excited to have the opportunity to
    share with you a little bit about the stories of the people I
    talk to every day. What is neat about it is I have gone from
    Big Four dealing with vice presidents in tax accounting that
    did not want to talk to me, to small business owners that
    really are looking for help and advice. And it has been
    overwhelming almost. I was just sharing, you know, how is
    business? It is too overwhelming right now because the economy
    is growing.
        I have put some numbers in front of you just to talk about
    the magnitude of the industry, but if you just look at the top
    five companies, you are looking at a $100 billion space. But
    what makes it truly remarkable in the sharing economy are the
    players. These are not companies that are essentially doing,
    although they disagree; what they are doing is they are getting
    the sharers and participants to really drive the activity.
        Just this morning I woke up in a home that was not my own
    and it was not that kind of night. I woke up in an Airbnb.
    Here, I got out of a car that was a complete stranger. I heard
    a cool story about a young lady in a graduate program at George
    Washington who is doing it on the side to hustle a little bit.
        So if there is anything I want to do, it is to tell you a
    little bit about their story and kind of how their intersection
    with tax is going because even small businesses have more
    sophistication than our entrepreneur, our solo entrepreneur.
    That is the term that we are using to describe it.
        So the sharers are really the meat of this and the numbers
    are incredible. The McKinsey Report suggests that one in three
    Americans at some level engage in independent contract work,
    and part of that spans the gig in the sharing economy. So what
    I am trying to share with you is that this affects or is going
    to affect a lot of people and it is not just your typical I am
    going to find capital and start a business person. This is
    somebody who gets home from work at night and is doing
    additional work on a platform like Upwork where they are trying
    to earn a little bit of cash, and lo and behold, all of a
    sudden they are sitting on something and they have no idea what
    their tax liability is. And that is where we come in.
        The stories that have really moved me though are the ones
    of people who would not have options outside the sharing
    economy. A single mom in Cincinnati, Ohio, who was able to list
    her home and not have to find a second job and now can stay at
    home with her kids, or the teacher in Urban LA where I am from
    who is able to do ridesharing to buy the school supplies that
    the school does not provide for. Those are the things that move
    me. And what troubles me is while I cannot help, the
    helplessness that I am approached with is always surprising.
    And what can I tell them? What can I tell them that their tax
    breaks are? What can I tell them that the silver bullet for
    their tax solution is? I do not have one.
        I spent many years at a big firm where I was locked up in
    some hole and stuck under pages of loopholes and options and
    structures and movements, but yet I have got nothing for the
    solopreneur.
        This bill is important. It is important to the people I am
    helping, but it is important to a very large demographic in
    America that is everywhere. And more than anything, what I
    would like to say to them is, hey, this year Congress did
    something. I love this bill. I like it. Directionally, it is
    pointing in the right direction. Magnitude-wise I would be
    shorting myself if I did not say it did not go further. I would
    love to see reporting requirements come down for the 1099. I
    would like to see some standardizations for the 1099-K. It is
    just not enough in my eyes.
        Thank you for my time. I will yield the floor.
        Chairman CHABOT. Thank you very much. Appreciate it.
        Ms. Bruckner, you are recognized for 5 minutes.

                     STATEMENT OF CAROLINE BRUCKNER

        Ms. BRUCKNER. Members of the Committee and staff, thank you
    for the invitation to testify today. I am going to speak really
    fast because I have a lot to say.
        My name is Caroline Bruckner and I am a tax professor at
    American University. I am also the managing director of the
    Kogard Tax Policy Center, which conducts nonpartisan policy
    research on tax issues specific to small businesses. I
    appreciate the opportunity to share my views on this bill which
    I worked with Committee staff to develop because it includes
    essential tax code changes to address sharing economy tax
    compliance challenges that I brought to this Committee's
    attention in my report, Shortchanged: The Tax Compliance
    Challenges of Small Business Operators Driving the On-Demand
    Platform Economy. This is a bipartisan bill proposing common
    sense changes to meet the needs of the growing sharing economy,
    as well as those of the self-employed small business owner.
        Three provisions of this bill stand out as good examples of
    the bill's results-oriented approach. First, the changing of
    the due dates for quarterly estimated payments; second, the
    proposed alignment of the Form 1099-K and 1099-MISC filing
    income thresholds; and third, the reinstatement of the
    deduction for health insurance costs for the self-employed.
        First, by updating the due dates for the second and third
    quarter quarterly estimated payments to be due after a
    quarter's end, the bill facilitates compliance because
    taxpayers will have better information for calculating net
    income, rather than having to rely on their best guess.
        Second, the bill proposes long overdue updates to the Form
    1099 filing thresholds. Expert economists have found that the
    sharing economy is the latest example of a 66 percent increase
    in alternative work arrangements which have almost doubled in
    number from 2005 to 2015. Income from a significant portion of
    these arrangements is tracked through Form 1099 filing.
    However, in Shortchanged, we found that 60 percent of sharing
    economy operators I surveyed did not have any Form 1099 for
    their platform income and we concluded that the $20,200
    transaction threshold for credit card payments to be the
    primary reason why.
        In response to Shortchanged, the IRS and industry have
    acted to help taxpayers by launching the IRS Sharing Economy
    Tax Center on IRS.gov and some platforms have started to issue
    Form 1099-Ks even when not required to by law. This bill takes
    the next logical step by aligning the 1099 filing thresholds at
    $1,500. By lowering the filing threshold for Form 1099-K, the
    bill works to ensure at the very least that the majority of
    sharing economy operators will have the tax forms they need to
    file their taxes. At the same time, the bill modernizes the
    Form 1099-MISC threshold by raising it from $600 to $1,500 for
    the first time since 1954.
        By creating a uniform reporting standard for 1099-MISC and
    1099-K, the bill will generate greater compliance by both
    taxpayers and reporting entities because more taxpayers will
    receive Form 1099s. It is really that simple.
        Third, this bill reinstates the deduction for healthcare
    costs for the self-employed that was temporarily available in
    the 2010 Small Business Jobs Act. That had an immediate effect
    on the health insurance costs of the self-employed small
    business owners. Let's return to that.
        This bill is a common sense, results oriented approach to
    address tax challenges faced by America's small businesses, but
    I urge the Committee to do more. As Congress moves forward with
    tax reform, this Committee should consider the tax challenges
    faced by women business owners, 99 percent of whom are small
    business owners. Our latest groundbreaking research, Billion
    Dollar Blind Spot: How the U.S. Tax Code's Small Business Tax
    Expenditures Impact Women Business Owners, assessed how the Tax
    Code's more than $255 billion of tax revisions designed to help
    small businesses grow and access capital impact women-owned
    firms. We found that while women-owned firms have increased in
    number by 45 percent, a rate five times faster than the
    national average, the majority of women business owners are
    still small businesses operating in the services industry, and
    they continue to have challenges growing their businesses and
    accessing capital. Our survey data of engaged women owners
    corroborated our findings and suggested, however, that when
    women-owned firms can take advantage of tax breaks, they do.
    However, more work needs to be done to understand whether or
    not the Tax Code is operating as Congress intended for these
    small businesses. In answering the questions that we raised in
    our research impacting millions of women business owners, we
    found that Congress and stakeholders had a billion dollar blind
    spot when it comes to understanding how pervasive the tax
    challenges are with respect to women-owned firms. Ultimately,
    we urge this Committee to work with the tax writing committees
    to actually hold a hearing on these issues, for the first time
    ever. Second, we request that this Committee work with JCT to
    demand estimates on how small business expenditures impact
    women-owned firms, for the first time ever. In addition, we
    request that this Committee work with the Federal Commission on
    evidence-based policymaking to develop strategies for
    developing the data we need to measure how the Tax Code does
    impact these small business owners.
        Thank you very much for the opportunity to testify before
    you, and I am happy to answer any questions that you have.
        Chairman CHABOT. Thank you very much. You have got 20 more
    seconds. Do you want to get any more words in there? That was
    impressive. Without doubt, in the 3 years that I have been
    chairman of this Committee, that is the most words in 4-1/2
    minutes that we have ever gotten in. So well done.
        Okay. We will move to the questioning now. And I will begin
    with myself. Ms. Arslan, I will go to you first.
        As a small business owner, could you discuss your history
    and interaction, and of course, you mentioned in your
    testimony, but with cafeteria plans? And could you comment on
    H.R. 3717, the legislation that we are considering here, the
    impact that might have? Do you think we are heading in the
    right direction?
        Ms. ARSLAN. I do. One of the things I did want to mention
    is also maybe looking at HRAs as well. One of the big
    challenges for us as a business, we want to offer benefits to
    our employees. We are looking at right now how we can do that
    most cost effectively. Obviously, I think, you know, in my
    history working on small business policy as well as now as a
    small business owner, allowing the owner to actually
    participate in the benefit will help establish--will be more of
    an incentive to establish the benefit. I think for us with the
    cafeteria plans, allowing us to participate will help
    exponentially in us deciding whether we go that route. One of
    the challenges with cafeteria plans is the employer
    contribution. Our employees, our concern is our employees will
    not have the additional income to be able to take that money,
    you know, tax-free out of their check to go towards the
    benefits, so we are also looking at health reimbursement
    arrangements which are something that we as the business owner
    set up for them. We essentially would reimburse whatever, a set
    amount that we decide with the health reimbursement
    arrangement. So, for example, we can say we are going to give
    each of our employees $500 of health expenses. They go out and,
    you know, go visit the doctor or pay for insurance premiums.
    They send us the bill or the receipt and we can expense that or
    reimburse them through a business expense. That for us might be
    the better choice because of the type of employees we have and
    their financial situation, so we would love to see the same
    change made to HRAs where the owner can participate in those as
    well. If you had both of those, I think you would see
    significant expansion and benefit opportunities for small
    businesses and their employees.
        Chairman CHABOT. Thank you very much. I appreciate it.
        Ms. Wyatt, I will go to you next. As an entrepreneur about
    to launch a new startup, you had mentioned the amount of time,
    the complexity of the tax code and how much time you have to
    spend doing that. And if you did not have to spend so much time
    doing that you could devote more time to your business and
    hopefully be even more successful and hopefully be able to hire
    more people who need jobs. Could you comment on the complexity
    of things and how that does impact the time that you allocate
    in a typical week or month or however you want to put it?
        Ms. WYATT. Absolutely. It is a huge impact on time. We do
    not have any person on our team at MotionMobs who is dedicated
    to anything related to the Tax Code, tax filings, things of
    that issue. And so it usually affects us in two ways. It takes
    up our team's time to be focused on that. When an issue comes
    up that we have not been as proactive on because it is not a
    primary part of their expertise or their daily job. And in
    addition to that, we usually end up spending money on outside
    resources to help understand, to make sure that we are doing
    what is expected and what we need to do to help with those.
    Preparing to launch V2 Property Management Group, this has been
    a huge consideration for us because we are considering hiring a
    large number of both employees and independent contractors and
    making sure that we understand the requirements for each of the
    classifications is extremely important so we know going into
    this what the expectations are, how much time it is going to
    take, and what resources we need to allocate our time wisely
    and to make sure that we are making the correct hires in both
    categories.
        Chairman CHABOT. Okay. Thank you very much.
        And Mr. Centeno, you had mentioned in your testimony about
    how unique and how new businesses that you are dealing with in
    the sharing economy are coming. What impact does the Tax Code
    as it currently exists have on these folks? How do they pay
    their taxes, or a lot of them maybe not pay their taxes, and
    that sort of thing? And what, if any, impact do you think
    legislation like this might help?
        Mr. CENTENO. Yeah. I think the reality is that people show
    up and they say I just do not know. I have been a W-2 filer my
    whole life and you know, what do I do now that I have to track
    my own deductions and expenses? So for most of these filers we
    are talking about a Schedule C. So I think half the battle is
    just talking about compliance complexity, the question being
    how hard is it just to file under existing rules? And that
    seems to trip up a lot of the solopreneurs that we are talking
    about. And that is not even going into kind of, you know, tax
    benefits and where we can kind of simplify it. But I think
    where this bill really fits in, where it could grow is, you
    know, if we can update the Schedule C to actually reflect
    expense categories that happened in 2017, that would be a way
    forward. If you look at the Schedule C, tell me where to put
    software expense or tell me where to put any number of
    expenses. So I think just interpretation is one of the hiccups
    that someone who is not used to seeing tax language is going to
    get hit with.
        Chairman CHABOT. Thank you very much.
        Ms. Bruckner, I want to apologize to you. I did not use my
    time as efficiently as you did and I ran out of time, so I am
    going to have to call myself on that.
        And the ranking member is recognized for 5 minutes.
        Ms. VELAZQUEZ. Thank you, Mr. Chairman.
        Ms. Bruckner, I have held some different events and
    roundtables on the challenges that women business owners face
    in accessing capital. And I just heard you talking about how
    the tax code treats female entrepreneurs. I would like for you
    to expand on that but also do it in light of the GOP, the
    Republican proposal that was just released last week.
        Ms. BRUCKNER. I think the first thing that we all need to
    take into account when we talk about the tax challenges of
    women business owners is that the Tax Code does not
    discriminate against women business owners. What we have not
    considered though is how women business owners have challenges
    accessing capital and scaling, and what we can use in our tax
    toolbox to help these small businesses grow because we do have
    small business tax provisions that are specifically designed to
    help small businesses grow and access capital. The challenge
    that I found in my research is that they are targeted to
    different industries and different organizational firm types
    than those in which women predominantly operate. So they are
    completely bypassing women who are typically not incorporated,
    like most small businesses, or women who are in primarily the
    services industries and not in production and construction or
    manufacturing. And these are issues that we have never
    considered because the Tax Code, in fact, does not discriminate
    against women business owners. But that does not mean that
    these policy challenges and questions are not something that
    Congress should consider when we know that women business
    owners have larger existing and pervasive problems accessing
    capital and trying to scale their businesses.
        In terms of the tax framework, I am still reviewing the
    specifics of it, but one thing that I think we should all keep
    in mind is that because business women owners tend to have
    challenges scaling and growing, their receipts tend to be
    lower. And so 90 percent of women business owners report
    receipts. And that is not net; that is just receipts based on
    the latest commerce data of under $100,000 a year. So they are
    already paying at the lower marginal rates.
        Ms. VELAZQUEZ. Thank you. Thank you.
        Mr. Centeno, the 1099-MISC is used to report payments to
    independent contractors, but the threshold has not been
    adjusted since 1954. Additionally, the 1099-K is required when
    payments are made exceeding $20,000 per year and for more than
    200 transactions. Do the micro entrepreneurs you work with
    fully understand the differences between these forms and how
    can updating the thresholds create more simplicity for them?
        Mr. CENTENO. I think the short answer is no. You know,
    understanding the differences only becomes necessary when it is
    in the mail. So I think one is what the micro entrepreneur, the
    solopreneur receives, and that is the 1099-K. So what we are
    seeing right now is a lot of confusion. Someone saying, hey, I
    made $18,000 on Airbnb. I did not get anything. Do I need to
    report it? And I would say on the margins you are going to see
    underreporting. And perhaps in the future if there is ever
    audit of Airbnb payouts they are going to get called back and
    audited. And we have seen that. We have seen someone say I did
    not get a 1099-K so I did not report it and now I am getting
    audited. What do I do?
        On the 1099-MISC, I think the last update says enough. The
    last time it was updated was 1956?
        Ms. VELAZQUEZ. 1954.
        Mr. CENTENO. Who was in office?
        Ms. VELAZQUEZ. I was not born. Thank you.
        Ms. Arslan, Mr. Centeno, you both mentioned the self-
    employment threshold. Would you like to elaborate on that?
        Ms. ARSLAN. Yeah, sure. So currently it is at $400, and
    that threshold has also never been updated. And so if you would
    adjust it annually we would be around $6,000. And so really
    taking a look at that, especially in light of the sharing
    economy, looking at what we can do to modernize that threshold
    I think would be significantly important for both the sharing
    economy and also self-employment. A lot of people, as you know,
    test the waters and just try and see if it is something that
    they are interested in doing. So let's help incentivize
    entrepreneurship and support the sharing economy to look at
    modernizing that threshold.
        Ms. VELAZQUEZ. Thank you.
        I yield back. Thank you.
        Chairman CHABOT. The gentlelady yields back. Thank you very
    much.
        The gentleman from Iowa, Mr. Blum, who is the chairman on
    the Subcommittee on Agriculture, Energy, and Trade is
    recognized for 5 minutes.
        Mr. BLUM. Thank you, Chairman Chabot, and thank you for
    being here today to our witnesses.
        Ms. Bruckner, you mentioned the date 1954, I believe, and
    it just came up again. Are you implying that 1954 was a long,
    long time ago? And before you answer, I was born in 1955.
        Ms. BRUCKNER. So the filing threshold for 1099-MISC made
    its way into the code when it was revised one of the times that
    Congress has successfully undertaken tax reform, which was in
    1954. And that is when they established the $600 threshold,
    which adjusted for today's term by inflation which would be in
    excess of $6,500 today.
        Mr. BLUM. For the record, that is a long time ago.
        The new tax reform package we introduced last week, the
    unified framework for it, we are debating it now, so this is
    very timely. One of the two major goals of this tax reform
    package is economic growth. We have been growing over the last
    10 years at 50 percent of the post-World War II average and
    that hurts every small business because it is in our DNA--I am
    a small business person--to grow; correct? So I would like to
    hear from each of you if you could take about a minute each,
    what part of the current Tax Code do you think needs to be
    changed or eliminated so that small businesses can grow and we
    can achieve 3 percent GDP growth for our economy nationwide?
    What is the biggest thing?
        Ms. ARSLAN. Well, I know we talked a little bit about pass-
    through entities. My gourmet popcorn company is a pass-through
    entity. We do pay taxes on the higher end, and so if we would
    get some sort of tax cut for pass-through entities, we would
    have more money in our pocket. We are currently looking to open
    another location. We would add anywhere from 6 to 10 new jobs
    with that new location. We want to fund it with our current
    revenue. We do not want to have to add new debt, especially
    because it is so challenging for a business of my size to get
    access to capital. Even though we launched our business with a
    loan and paid it off 2 years earlier, we still have trouble
    with banks getting additional funding to open another location.
    And so that money would be used for us for additional growth
    and job creation, so really looking at pass-through entities
    and what we can do on their tax rates would be really
    important.
        I also think overall simplification. Why does it have to be
    so hard for us to file our taxes? Why do we have to spend the
    amount of time and money to comply with the code? Again, more
    money that could go back reinvested in our business.
        Mr. BLUM. Thank you.
        Ms. Wyatt?
        Ms. WYATT. To focus on just one issue, worker
    classification I think is going to be a very important part,
    both in this bill and in the overall conversation. We have
    heard about a lot of different companies in the sharing economy
    today. We have talked about Airbnb and Uber and I mentioned
    Shipt, the company in my town, Birmingham. And my new startup,
    V2, all of them are working with a combination of both
    employees and independent contractors and the classifications
    are confusing for both larger companies and small businesses
    alike. And while Shipt, as I mentioned, has 250 employees now
    and over 1,000 independent contractor, they were a startup 2
    years ago with just a few employees and just a few independent
    contractors. And looking at that growth in their business and
    in many others across the country and wanting to take that on,
    I want to understand what we are getting into to understand
    these classifications better, and I think it is important for
    other small businesses and startup entrepreneurs to understand
    those classifications so they can experience that growth.
        Mr. BLUM. Thank you.
        Mr. Centeno?
        Mr. CENTENO. I will piggyback on that a little bit. I mean,
    it is very important. As we start to see entities or people go
    from startup to scale, we see a lot of confusion around that.
    And we have seen business owners go to freelancers from India
    or overseas because they are worried having a local independent
    contractor is going to trigger some of the self-employment
    taxes.
        Mr. BLUM. What is the single biggest thing in the current
    Tax Code that needs to be changed or eliminated to have us
    increase our economic growth? Single biggest thing?
        Mr. CENTENO. Self-employment threshold.
        Mr. BLUM. Go ahead.
        Mr. CENTENO. Self-employment threshold. I think that one,
    especially if we have solopreneurs who are testing the water.
    They are getting hit and I have seen it. They say, you know
    what? I made 4 grand but I am getting hit at 15 percent. I am
    out. You just had an entrepreneur quit.
        Mr. BLUM. We have 12 seconds left. Ms. Bruckner, but you
    speak fast, so go for it. Go for it.
        Ms. BRUCKNER. I would reconsider what we can do to enhance
    the startup deduction. I think that that is an overlooked,
    underutilized. It is something that Kristie Arslan could use
    immediately if it was more generous to help capitalize her
    second location. And I think that is one of those expenditures
    that should remain in the code because we do have economic
    evidence that it is successful. I think that it is definitely
    the number one thing I would look at.
        Mr. BLUM. Thank you. My time is expired. I yield back.
        Chairman CHABOT. Thank you very much. The gentleman's time
    has expired.
        The gentleman from Pennsylvania, Mr. Evans, who is the
    ranking member on the Subcommittee of Economic Growth, Tax, and
    Capital Access is recognized for 5 minutes.
        Mr. EVANS. Thank you, Mr. Chairman.
        Mr. Centeno, I want to go back to something you said
    earlier in terms of this bill, you would go further. Three
    specific ways you would say you would go further than what this
    bill is proposing at this point?
        Mr. CENTENO. Well, I can give you one. Two might take me a
    little more time.
        Mr. EVANS. Okay.
        Mr. CENTENO. And, yeah, so I think an exemption on self-
    employment income would be a good way forward. $6,500 seems to
    be the inflation amount that we are talking about, so that
    would be good directionally.
        On the 1099-MISC form, we would like to see that go up. I
    cannot tell you how many business owners do not understand at
    the end of the year how much they have got to send out because
    they tested out three or four different independent
    contractors. So raising that threshold would be very powerful
    if done at a significant level. Increasing at the rate now, it
    just does not go far enough in my opinion.
        Mr. EVANS. Ms. Bruckner, small firms often have the fewest
    resources to spend on accountants to work through complicated
    tax problems like workers' classification. What steps can be
    taken to put small businesses on a level playing field when it
    comes to their tax compliance?
        Ms. BRUCKNER. I think that the number one thing that we can
    do is education outreach. Make it easier for people to access
    the information that they need from the IRS, and I think that
    if people can answer these questions by looking it up on their
    smartphones, which that is how most people have access to the
    Internet, modernizing the technology that the IRS uses to make
    it more easily accessible for taxpayers to answer tax questions
    easily and in a straightforward manner would go a long way to
    solving compliance problems.
        Mr. EVANS. What I sense from your testimony, and you can
    tell me if you think I am correct, do you think the Tax Code is
    friendly to small businesses?
        Ms. BRUCKNER. I do not think taxes are friendly to anyone.
    I do not like paying them myself but I do it because I am a
    patriotic American. And I think that I also have deep, deep
    concerns about our current budget picture. And what I am all
    about is----
        Mr. EVANS. Tell me exactly what do you mean when you say
    ``deep concerns about the budget picture''?
        Ms. BRUCKNER. I have very deep concerns about our current
    state of our debt and deficit and the trajection at which we
    are going. What I think that we can do now though to make life
    better for people is make it easier for people to comply with
    the rules as they are. I think that it is very important to
    focus on compliance and efficiency and making life better and
    making real changes that small businesses can take less time
    having to figure out their taxes. Making compliance challenges
    more efficient. Making the IRS more efficient will go a long
    way to addressing the hassle of paying taxes without addressing
    the larger question of how much we actually pay in taxes.
        Mr. EVANS. Thank you, Mr. Chairman. I yield back the
    balance of my time.
        Chairman CHABOT. Thank you. The gentleman yields back.
        The gentleman from South Carolina, Mr. Norman, is
    recognized for 5 minutes.
        Mr. NORMAN. First of all, I want to thank you all for
    coming. I am going to start off with a comment and then I will
    ask a question.
        I am a small business. I am a developer. The number one
    thing that you all could do as small business people and as tax
    preparers is tell your reps the things you are telling us. Have
    a group. Groups scare politicians. And I have been in the
    private sector. Now I am on the political end. But you can
    imagine the people that come to us now, all of us, with their
    hand out. It is the deficit that you are talking about that I
    am very concerned with, so what you can help us with is tell
    your story, get your reps in a room and tell them you want a
    meeting with them. Ask them some of the very things and suggest
    the things you are telling us.
        Let me ask, I guess, Ms. Arslan and Ms. Wyatt, when you
    hire people, what is the decision-making whether to hire an
    independent contractor versus putting them on the payroll? Is
    it healthcare, tort reform, or tort issues?
        Ms. ARSLAN. It is labor cost. For our type of business, it
    is our labor cost and managing labor cost, and based on our
    needs. Also, the type of work we need. If we need someone who
    has a particular expertise, we tend to look at them more as an
    independent contractor, how we can hire them as a contractor,
    versus if we need staff to do the daily functions of our
    business. And that is how we make those distinctions for our
    business. So, for example, most of the contractors we hire have
    specialized skillsets. Our accountant, the person helping us
    with our marketing, the gentleman that handles all of the
    repair of our specialized equipment, those people working on
    our food truck. So all those people have specialized skills, so
    we hire them as contractors. Anyone helping us with daily
    operations, we hire them as employees and that helps kind of
    keep for us the distinction so that we do not fall into that
    murky gray area of 20 questions to figure out contractor or
    not. So that is how we make those distinctions in our business.
        Ms. WYATT. For us, for the last 7 years at MotionMobs, we
    have paid all of our full-time employees 100 percent of their
    healthcare benefits for them and for their families. And what I
    have found is that that is very uncommon amongst other small
    businesses in our area and across the country. And so we are
    really dedicated to our staff. We really care about company
    culture and we care about setting good expectations when we
    hire employees. So if we are asking them to make a commitment
    to work with us and to call them after hours and to really be
    committed to what we are putting together, we try to show that
    in return. And so understanding this worker classification that
    I have been talking about going into this new startup, we are
    going to have a core set of employees who are working full time
    and who we are providing benefits for, and then separately, we
    are going to have a team that has specialized skills, and
    specifically is set up such that when a building needs a
    maintenance request, we can send that request out in an on-
    demand manner just like you would order a car with Uber in an
    on-demand manner. And therefore, we would need contractors to
    fulfill those requests for those tasks. In those circumstances,
    we are looking at them currently as independent contractors but
    really want to understand, for example, if we need to provide
    limited training on when they access someone's building and
    they are accessing their property and we are responsible for
    it. If we provide that training, does that mean that they are
    going to be classified as an employee? And how does that affect
    us as a brand new business with limited funds if our workers'
    classifications of hundreds of people suddenly shifts from an
    independent contractor to an employee classification?
        I also want to point out that I understand that we do not
    want to impose employee-like obligations on those independent
    contractors such that we would just be classifying them as
    independent contractors to avoid something. But all of this is
    why we really want to understand more about these
    classifications and how this bill could clarify that for our
    current business and our new business.
        Mr. NORMAN. In the startups, or as new businesses and
    starting new businesses, anything that you could--where would
    we go, where would you advise us to go further with the Tax
    Code?
        Ms. ARSLAN. I think that Caroline mentioned the startup
    deduction. I think that is important. I would love to be able
    to see existing businesses be able to use the startup deduction
    when they are opening new locations. It is a whole new business
    but we would have to, you know, we do not get any more tax
    benefit for opening up new locations. I think, again, dealing
    with some of the thresholds that this bill does, looking at
    self-employment thresholds, I think looking at tax cuts, and
    then simplification are all things that will help us move
    forward. But at the end of the day I think with the deficit in
    mind, I still think we need to have a tax cut that is going to
    incentivize entrepreneurship.
        Mr. NORMAN. Right.
        Ms. ARSLAN. Incentivize people wanting to start businesses
    and stay in small business.
        Mr. NORMAN. I think my time is expired. Thank you all so
    much.
        Chairman CHABOT. Thank you very much. The gentleman's time
    has expired.
        The gentleman from Florida, Mr. Lawson, who is the ranking
    member of the Subcommittee on Health and Technology is
    recognized for 5 minutes.
        Mr. LAWSON. Thank you. That was very interesting to hear
    all of you all. But I wanted to know, there is a lot of talk
    about small businesses in general and what the needs may be in
    regards to tax reform. But what consideration for
    microbusinesses should be taken into consideration during this
    discussion of tax reform? And everyone can respond to it.
        Ms. BRUCKNER. I think first and foremost this bill
    represents some of those needs. Number one, by lowering the
    1099-K threshold from $20,000 to $1,500 to make sure people
    actually get the forms that they need to file their taxes would
    go a long way. That could impact as many as, you know, millions
    and millions of people that are operating in the sharing
    economy. Also, raising the threshold for 1099-MISC. But I also
    think the allowance for the deduction for the self-employed
    that had been allowed under the Small Business Jobs Act in
    2010, reinstating that would help small business owners who are
    paying for their own health insurance go a long way to
    deducting those costs and help make health insurance more
    affordable for that population.
        Mr. CENTENO. Yeah, I mean, the components of filing a tax
    return are what you know and what you have got. Right? So being
    able to get the right tax form in the mail when you have done
    the work is part of what you have got. And the other part, I am
    not sure how to answer. How do you educate a country that does
    not include any tax or finance in education? Now, I know this
    is not the Education Committee, but I am seriously wondering
    because people ask us all the time, you know, what is the
    resource that we should go to? The IRS does have a new website,
    and we get a lot of traffic of people finding a dead end and
    then coming to our website. This is really not a response to
    the question which is, yeah, what can be done to educate
    taxpayers on the minimums that they need to do? Because we have
    a lot of solopreneurs who just have no idea, throw their hands
    up and quit the business.
        Ms. WYATT. I think H.R. 3717 does a lot of things and takes
    a lot of steps in the right direction. I am excited about some
    of the provisions in the bill such as the cafeteria plans and
    that being an option. Right now it excludes half of my team, so
    if this was available now this would have a huge impact on my
    current company, MotionMobs. And the worker classification that
    we have been talking about I think is really important. In
    terms of how you can go further, currently how it is proposed
    is worker classifications would be voluntary training. You
    could provide voluntary training to independent contractors,
    and in the sharing economy, like we have discussed with several
    companies and with my new startup, there are cases where you
    may want to provide training to them and make that training
    mandatory in certain circumstances. And so finding the right
    balance between mandatory training and not imposing employee-
    like obligations on independent contractors I think is a tough
    balance but something definitely to consider because it is such
    an important issue.
        Ms. ARSLAN. As a microbusiness, I think that the Small
    Business Owners Tax Simplification Act is going in the right
    direction. I think additionally doing things like modernizing
    or increasing the threshold on self-employment income would go
    a long way for smaller businesses. Expansion of HRAs. Looking
    at the startup deduction, ways we can use that as well. I think
    all would help microbusinesses.
        And I do think something that was discussed is what can we
    do to continue to support things like the Small Business
    Development Centers, Women Business Centers, because they do a
    lot of on-the-ground training on tax stuff during tax time on
    teaching these self-employed and microbusinesses on what they
    are responsible for, how to understand the Schedule C form. And
    so how can we support them better in that training and
    education so that smaller businesses and microbusinesses know
    what is required of them, and what can we do to make the IRS
    more responsive to questions from smaller businesses so they
    can clearly understand their compliance obligations?
        Mr. LAWSON. My time is almost out but I wanted to know when
    do you make the decision about whether that employee is--how
    many hours can that employee work before they be considered a
    full-time employee in reference to someone you contract out
    with for tax purpose? And you might not be able to answer but,
    you know.
        Ms. WYATT. I am not certain what the exact time is. For us,
    in reference to the sharing economy, I think that it is going
    to be for specialty skillsets. So 20 hours would be a lot
    during the week but I am not exactly certain what the right
    timeframe should be. I think it is more around what obligations
    are required of that contractor versus employee.
        Mr. LAWSON. Okay. I yield back, Mr. Chairman.
        Chairman CHABOT. Thank you very much. The gentleman's time
    is expired.
        The gentleman from Nebraska, Mr. Bacon, is recognized for 5
    minutes.
        Mr. BACON. Thank you, Mr. Chairman. And I appreciate all
    four of you being here and your feedback on this bill.
        After hearing your feedback, reading the bill, and doing
    the hard work the chairman and the ranking member have done on
    this, I will be a cosponsor as of today, so you earned my
    support.
        I also want to support you for just your general comments
    today because what the four of you cumulatively have talked
    about is the themes that we have heard since I have been on
    this Committee since January. So I think we have heard from
    many that healthcare costs for small businesses are a top
    issue. We have heard red tape. And I think you mentioned it
    really well how hard it is to work through all the regulations
    and you just cannot hire someone to do this costly. I have
    heard about pass-through, you know, tax rates. Also, the access
    to capital. And those are the four common themes that we keep
    hearing and I think you all, three of the four of you have
    touched on those four.
        I would like to just go back to the bigger tax law that we
    are working on, just get your feedback and some have here. If
    we lower the C corp rates to 20 percent, S corp to 25 percent,
    remove all of those deductions so people are paying around 25
    percent or 20 depending on what you are, is this helpful?
        Ms. ARSLAN. With taxes I always say ``the devil is in the
    details''. I think the framework is a great start. I do want to
    say, I think in terms of the business ecosystem, there is an
    ecosystem between large and little firms. We want large firms
    to be competitive because that helps our little business. We do
    a lot of business with big companies.
        Mr. BACON. Right.
        Ms. ARSLAN. And so we think it needs to be done
    simultaneously, both on the corporate side and the small
    business side. I do not think you can leave out one. But ``the
    devil is in the details'' because all these deductions matter
    when you are looking as a small business owner. For us,
    expensing, reporting requirements, thresholds, all of that
    matters, so we really need to see what it is going to look like
    at the end of the day to see how it is truly going to impact
    our business.
        Mr. BACON. I got the impression earlier that you were
    paying above 25 percent.
        Ms. ARSLAN. We are. Yes.
        Mr. BACON. So getting this down to 25 is a good thing.
        Ms. ARSLAN. On the face of it, lowering the pass-through
    rates would benefit our business. I would also like to see what
    deductions might be adjusted and how that would balance out for
    our business.
        Mr. BACON. Okay. Any other commentary?
        Ms. WYATT. The details of how it is lowered and just
    specifically, what tax credits are affected. Currently,
    approximately 64 percent of new private sector jobs are from
    small businesses, and I really like our return on investment on
    some of these tax credits. I own an office building in
    Birmingham, and in our city the historic tax credit has been
    such a huge part of revitalizing the city.
        Mr. BACON. I was a cosponsor on that, too, but you are
    right. That may go away with the simplification to lower the
    rates.
        Ms. WYATT. It could. And so I think you have to look at the
    tax credits as the huge return on investment for small
    businesses and for examples like the historic tax credit as
    well.
        Mr. BACON. Right.
        Ms. WYATT. So I think it is very important to study the
    details, and yes, lower taxes can be great but we have to look
    at where it is coming from and if it is better to leave those
    credits in.
        Mr. BACON. Thank you. Any other comments?
        Mr. CENTENO. Yeah, I mean, I will say, you know, kind of
    the question we have in our circles is, you know, what do we
    give up for that?
        Mr. BACON. A lot of deductions. But we will get you down to
    25 or 20.
        Mr. CENTENO. No, and I think anecdotally, you are going to
    see a lot of people, there are already a lot of S corps. You
    are going to see a lot of people move into S corps. Even
    solopreneurs. We are kind of seeing that. So when you hit a
    certain threshold it probably makes sense and there is probably
    benefit. And those are the kind of scenarios that we run. So
    there is certainly a benefit there.
        Mr. BACON. Thank you.
        Ms. Bruckner?
        Ms. BRUCKNER. I think that, as Kristie said, ``the devil is
    in the details'', and before moving forward I think that we
    would definitely have to have the input of the Joint Committee
    on Tax and CBO to see exactly how this is going to impact the
    debt and deficit because, remember, if we throw our debt and
    deficit out of whack, that does a lot of damage in terms of
    financing down the road for small businesses because it could
    have an impact on interest rates and how much interest that we
    are having to pay on the debt. And that is something that is of
    concern. As someone that worked on the Budget Control Act of
    2011, I know how serious it can be when the credit rating
    agencies decide to take action or make commentary on our
    ability to pay our debts and that is something that would
    concern me.
        Mr. BACON. With my remaining time maybe I will just focus
    on Ms. Arslan. I think you have already talked about healthcare
    a little bit. Can you talk a little bit about how the
    individual market has impacted your business with the ACA?
        Ms. ARSLAN. Sure. We actually get our health insurance
    through the exchange in Virginia, and our rates have gone up
    every year the past three years double digit. I am literally
    paying almost equal to my mortgage for our health insurance for
    my family of four. And then every year also we have had
    insurers leave the exchange, so trying to figure out what the
    best way is to find coverage. Again, we want to make sure that
    our--we want that balance. We need lower costs. We want to be
    able to offer benefits for our employees which is why things
    like cafeteria plan expansion and HRA expansion would be a huge
    help for our business, especially if us as owners can
    participate in that. But what can we do to address some of the
    affordability costs.
        Mr. BACON. Right.
        Ms. ARSLAN. While also making sure that people have access
    to coverage.
        Mr. BACON. I would love to have asked the other three of
    you, too, but I am out of time. Thank you.
        Chairman CHABOT. Thank you very much. The gentleman's time
    has expired.
        In closing, we want to thank the panel for your excellent
    testimony here this morning. And now this afternoon. I think
    you did a great job, and this will certainly help us not only
    in H.R. 3717, and we hear your support. That is the one where
    the ranking member and I are cosponsors of the legislation, so
    I think it is safe to say we probably will not necessarily
    completely agree with the overall tax reform that Congress is
    considering right now. That will be a little bit tougher one I
    think for both sides to come together on, but with this one we
    are in sync. And I think the plan is to hopefully have this
    included in the overall tax reform, if at all possible. So we
    will see how this all plays out. But thank you very much.
        We ask unanimous consent that members have 5 legislative
    days to submit statements and supporting materials for the
    record. Without objection, so ordered. And if there is no
    further business to come before the Committee, we are
    adjourned.
        Thank you very much.
        [Whereupon, at 12:14 p.m., the Committee was adjourned.]

                                A P P E N D I X

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        Chairman Chabot, Ranking Member Velazquez and Members of
    the Committee, thank you for allowing me to participate in this
    important hearing today on behalf of the Small Business &
    Entrepreneurship Council (SBE Council). In addition to acting
    as SBE Council's Entrepreneur-in-Residence, I am also the co-
    owner of Popped! Republic Gourmet Popcorn, a small business in
    Alexandria, Virginia.

        SBE Council is a nonpartisan, nonprofit advocacy, research
    and education organization dedicated to protecting small
    business and promoting entrepreneurship. For nearly 25 years
    SBE Council has worked to advance a range of policy and private
    sector initiatives to strengthen the ecosystem for startups and
    small business growth. We have a nationwide network of more
    than 100,000 members and as one of those members, I welcome
    this opportunity to discuss the importance of tax reform to
    small business, at all phases in their business lifecycle, and
    the positive impact it can have on our economy.

        In the September 25, 2017 CNBC/SurveyMonkey Small Business
    Survey of over 2,200 business owners, taxes topped the list of
    ``critical issues,'' for small business, beating out health
    care, regulation, and customer demand. This issue is not solely
    a small business issue--nearly nine in 10 CEO chief executive
    respondents to the Business Roundtable's September 2017
    economic outlook survey identified the tax code as the most
    important disadvantage to the U.S. economy relative to other
    major economies. The great unifier amongst businesses big and
    small is their ire for the U.S. tax code and the anxiety
    derived from three simple letters--the IRS.

        The U.S. business community is in dire need of a tax code
    that encourages investment and growth, fosters new business
    creation, and alleviates the excessive compliance burden
    costing businesses both substantial time and money. Three ways
    to accomplish this--tax cuts, tax reform, and tax
    simplification.

        Tax Simplification & Tax Reform

        With over 2.4 million words, the tax code is so
    overwhelming that it is extremely difficult for small business
    taxpayers to reliably and accurately comply with the breadth of
    tax regulations. Most especially, the smallest businesses among
    us who cannot afford an accountant or CFO to consistently
    monitor the tax code and tax policy are the most disadvantaged.

        According to a 2016 Tax Foundation study, Americans will
    spend more than 8.9 billion hours complying with IRS tax filing
    requirements in 2016. The majority those hours was spent
    complying with business tax regulations (2.8 billion hours) and
    individual income tax requirements (2.6 billion hours.) The
    price tag for this compliance burden was $409 billion last
    year.

        On top of the compliance burden, our tax code has not kept
    pace with our changing economy. Technology has been a game
    changer in the way we do business, evident by the explosion of
    ecommerce and the sharing economy. Policymakers need to
    consider changes to the tax code to bring it into the 21st
    Century.

        The Small Business Owner's Tax Simplification Act (H.R.
    3717), cosponsored by Chair Chabot and Ranking Member Velazquez
    on this committee is a necessary first step and would bring
    about much needed simplification and reform to our tax code.

        Key provisions such as increasing the dollar threshold
    required for filing a 1099-MISC form from $600 to $1,500,
    aligning quarterly reporting deadlines, and allowing business
    owners to both offer and participate in Cafeteria Plans would
    mitigate compliance challenges as well as expand benefit
    offerings for small businesses.

        Additional Recommendations

        To further modernize the code, SBE Council recommends that
    the committee look at the current $400 threshold on self-
    employment taxes, which has never been updated. If the self-
    employment tax floor had been adjusted at the same rate as the
    standard deduction on federal income, which is adjusted
    annually, it would be more than $6,000. Updating this threshold
    would give new entrepreneurs a better chance for success and
    encourage more people to start businesses.

        Similar to the expansion of Section 125 Cafeteria Plans
    laid out in H.R. 3717, we encourage the committee to also
    consider the expansion health reimbursement arrangements (HRAs)
    found in Section 105 of the Internal Revenue Code. HRAs are a
    flexible benefit option that allows small business owners to
    reimburse employees tax free four out-of-pocket medical costs,
    including health insurance premiums.

        Key features of an HRA is that they do not require the
    business owner to purchase a group health plan nor require any
    contribution from employees out of their paycheck. Thus,
    business owners unable to provide health insurance as a benefit
    to their workers due to affordability and those with lower wage
    staff that cannot afford to set aside funds, can utilize an HRA
    to offer some financial assistance to their employees for their
    health costs. Unfortunately, like Cafeteria plans business
    owners cannot participate in their own HRA. SBE Council
    supports amending HRAs to allow business owner participation.

        Tax Cuts

        Providing tax cuts to small business and their corporate
    partners are also a vital component to kickstarting economic
    growth. SBE Council supports reducing both the tax rate of
    pass-through entities and the corporate tax rate.

        Over 90% of businesses are--LLCs, partnerships, sole
    proprietorships or S corps--that pay their taxes based on their
    individual income tax rate. For these business, every dollar is
    typically reinvested back into their business to help with
    operations and growth.

        Our business, Popped! Republic Gourmet Popcorn, is
    currently structured as an LLC. This structure dictates that we
    pay taxes based on our individual income tax rate and as owners
    we are not considered employees thus when we pay ourselves, we
    are then responsible for paying estimated taxes to the IRS.
    Additionally, as our revenue grows we need to be mindful of our
    tax status to ensure we are not faced with a huge tax bill at
    the end of the year. Thus, tax cuts and tax reform are very
    important to us and our business, as well as something we are
    always thinking about as we make business decisions.

        We hit our 5-year anniversary this May, at present have 11
    employees and are currently in growth mode. We now operate a
    store in Alexandria, VA, a mobile food truck in D.C. and we
    just opened a kiosk location at the Fort Belvoir Military Base.
    We are working to add another retail location in northern
    Virginia which would create an additional six to eight jobs. We
    would like to fund this growth with the revenue from our
    existing business operations.

        Tax cuts on pass through entities such as ours, would allow
    us to keep more of our money to fund this expansion and
    minimize our need to take on increased debt. Growth, job
    creation, and enhancing the local economy--the exact mantra
    we've heard from lawmakers year over year.

        You may ask, why should a small business care about the
    corporate tax rate. Reducing and reforming the corporate income
    tax rate is not just a ``big business'' issue. According to the
    latest Census Bureau data, 86 percent of corporations have less
    than 20 employees, and 96.7 percent less than 100 workers. Many
    of these businesses are in high-growth sectors, and they--as
    well as their employees and our economy--would benefit
    tremendously from reducing the corporate rate. Additionally,
    small businesses such as our gourmet popcorn company, do
    significant business with corporations and large companies.
    Their health and competitiveness impacts our bottom line.

        Reducing the tax rates for small and large businesses alike
    would provide a needed jolt to the economic ecosystem in our
    nation to spur growth and job creation.

        Conclusion

        A surprising ``Gap Analysis'' report on entrepreneurship
    release by SBE Council this year found that there is a massive
    shortfall of businesses--some 3.4 million ``missing''
    businesses, compared to where we should be based on historical
    trends and key data related to incorporated and unincorporated
    self-employed, and employer firms as shares of the relevant
    population. A top priority of SBE Council is to promote policy
    that will enable greater levels of business ownership and
    support existing entrepreneurs.

        We believe that a pro-growth tax code is vital to
    reinvigorate entrepreneurship and improve the competitiveness
    of the U.S. economy. Our nation needs a tax code that enables
    small business sustainability and growth--the combined approach
    of tax cuts, tax reform and tax simplification will get us
    there.

        We appreciate this committee's consistent support of small
    businesses and commitment to work together to find bipartisan
    solutions to the challenges business owners face on this issue
    and others.

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