[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
              
              
              
              
              
 
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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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