[Congressional Record Volume 151, Number 25 (Monday, March 7, 2005)]
[Senate]
[Pages S2170-S2171]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Ms. SNOWE:
  S. 543. A bill to amend the Internal Revenue Code of 1986 to expand 
the availability of the cash method of accounting for small businesses, 
and for other purposes; to the Committee on Finance.
  Ms. SNOWE. Mr. President, I rise today to re-introduce a bill that I 
offered last year that I hope will be the first in a series of 
proposals to simplify the Tax Code for small business owners. Once 
enacted, these provisions will reduce not only the amount of taxes that 
small businesses pay, but I believe they also will reduce the 
administrative burden that saddles small companies in trying to satisfy 
their tax obligation.
  Let me begin by saying how pleased I am that the President has made 
simplifying the Tax Code one of his top priorities for his second term. 
Clearly, a world-class economy such as that of the United States 
requires a world-class revenue collection system, meaning we need a Tax 
Code that is simple, consistent, and fair. For that reason, I look 
forward to seeing the recommendations that the President's tax reform 
panel will offer on how best we can reform the current Tax Code to 
improve its efficiency and strengthen our overall economy.
  In the interim, the proposal that I am re-introducing today will 
simplify the code by permitting small business owners to use the cash 
method of accounting for reporting their income if they generally earn 
fewer than $10 million during the tax year. Currently, only those 
taxpayers that earn less than $5 million per year are able to use the 
cash method. By increasing this threshold to $10 million, more small 
businesses will be relieved of the burdensome record-keeping 
requirements that they must deal with currently in paying their income 
taxes.
  Before I talk about the specifics of this particular provision, let 
me first explain why it is so critical that we simplify the Tax Code. 
As you know, Mr. President, small businesses are the backbone of our 
nation's economy. According to the Small Business Administration, small 
businesses represent 99 percent of all employers, employ 51 percent of 
the private-sector workforce, and contribute 51 percent of the private-
sector output.
  Yet, the despite the fact that small businesses are the engine that 
drives our improving economy, the current tax system imposes entirely 
unreasonable burdens on them when they try to

[[Page S2171]]

satisfy their tax obligations. As you know, the current tax code 
imposes a large, and expensive, burden on all taxpayers in terms of 
satisfying their reporting and recordkeeping obligations. The problem, 
though, is that small companies are disadvantaged most in terms of the 
money and time spent in satisfying their tax obligation vis-a-vis 
larger firms.
  For example, according to the Small Business Administration's Office 
of Advocacy, small businesses spend more than 8 billion hours each year 
filling-out government reports, and they spend more than 80 percent of 
this time on completing tax forms. What's even more troubling is that 
companies that employ fewer than 20 employees spend nearly $6,975 per 
employee in tax compliance costs, and this amount is nearly 60 percent 
more than companies spend with more than 500 employees.
  These statistics are disconcerting for several reasons. First, the 
fact that small businesses are being required to spend so much money on 
compliance costs means they have fewer earnings to reinvest into their 
business. This, in turn, means that they have less money to spend on 
new equipment or on worker training, which unfortunately has an adverse 
effect on their overall production and the economy as a whole.
  Second, the fact that small business owners are required to make such 
a sizeable investment of their time into completing paperwork means 
they have less time to spend on doing what they do best--namely running 
their business and creating jobs.
  Let me be clear, however, that I am in no way suggesting that small 
business owners are unique in having to pay income taxes, and I am 
certainly not expecting them to receive a free pass. In order to 
benefit from the freedoms and protections that our great country 
provides, individuals and businesses alike are required to pay taxes, 
and this duty inevitably imposes some minimum administrative and 
opportunity cost. What I am asking for, though, is a fairer, simpler 
Tax Code that allows small companies to satisfy this obligation without 
having to expend the amount of resources that they do currently.
  For that reason, the package of proposals that I hope to introduce 
will provide not only targeted, affordable tax relief to small business 
owners, but they also will simplify the rules that exist currently. By 
simplifying the Tax Code, small business owners will be able to satisfy 
their tax obligation in a cheaper, more efficient manner, and they 
consequently will be able to invest more time and resources into their 
business.
  As I mentioned earlier, the provision that I am introducing today 
will permit more taxpayers to use the cash method of accounting rather 
than the accrual method. Generally, current law permits only those 
taxpayers that earn fewer than $5 million in gross receipts during the 
tax year to use the cash method in reporting their income. In addition, 
current law precludes taxpayers that have inventory from using the cash 
method. This means that thousands of small businesses that should be 
entitled to report their income and expenses under the cash method of 
accounting are required to follow the accrual method, which tends to 
impose additional financial and administrative costs that should be 
eliminated.
  My bill changes these existing rules so that more small businesses 
will be able to use the cash method. In short, my bill increases the 
gross receipts test under current law to $10 million and indexes this 
higher threshold to account for inflation. As the current $5 million 
threshold is clearly outdated, it makes little sense to have such an 
obsolete standard for this most important provision.
  My bill also changes current law to permit those taxpayers with 
inventory to qualify for the cash method of accounting. Notably, 
however, my bill will not give these taxpayers an opportunity to simply 
recover costs associated with these otherwise inventoriable assets in 
the year of purchase. Rather, my bill will require these taxpayers to 
account for such costs as if they are a material or supply that is not 
incidental. This standard already exists under current law, and it is 
one with which many small businesses are already familiar. As such, 
this less-burdensome standard should ease the existing compliance 
burden for eligible taxpayers and allow them to devote more time and 
resources to their business.
  Importantly, these changes will not reduce the amount of taxes a 
small business pays by even one dollar. Indeed, the overall amount of 
taxes a qualifying small business pays will remain the same. Rather, 
this bill simply permits more taxpayers to report income and account 
for costs in the year of the receipt or expenditure. Clearly, this 
method is much easier and simpler for small taxpayers, and it will 
reduce both their time and monetary expenditures spent on complying 
with the Tax Code.

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