[Congressional Record Volume 153, Number 61 (Tuesday, April 17, 2007)]
[Senate]
[Pages S4591-S4592]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                       SMALL BUSINESS TAX BURDEN

  Ms. SNOWE. Mr. President, today millions of taxpayers, many owners of 
small businesses, will file their income tax returns while some States 
in the Northeast, including my home State of Maine, have rightfully 
been given an additional 48 hours to file due to the devastating storms 
resulting in disastrous flooding, wind damage, and power outages.
  As citizens file their taxes this week, I am very happy to say that a 
wide majority of Mainers and Americans alike will be fully compliant in 
reporting the appropriate amount of income, with the Internal Revenue 
Service estimating 84 percent of taxpayers are compliant. The 
unfortunate flip side to that statistic is that 16 percent of taxpayers 
either fail to report income or underreport income and thus fail to pay 
all the taxes owed. This misreporting of income has resulted in a $345 
billion gross tax gap, which is the difference between taxes owed and 
paid.
  Unquestionably, we must ensure that taxes owed are taxes paid. While 
the Congressional Budget Office, CBO, projects a deficit of around $200 
billion this fiscal year without any abatement through 2011, the fact 
remains that narrowing the tax gap would help reduce the deficit--plain 
and simple.
  Not only does the tax gap prevent us from balancing the budget, 
equally disturbing is how noncompliance breeds disrespect for the tax 
system and can lead to the further shirking of obligations. The result 
could be that, to fill the gap, law-abiding taxpayers would have to pay 
higher taxes. Consider the following: According to preliminary IRS 
data, for 2005, taxpayers filed 134.5 million individual income tax 
returns. If we were to shrink the tax gap, each of those returns would 
have to be assessed additional tax in the amount of $2,566. I would not 
want to be in position to ask my constituents for more of their hard-
earned money, especially to cover those who are not paying their fair 
share.
  Last year, the Treasury Department issued ``A Comprehensive Strategy 
for Reducing the Tax Gap.'' This document astutely points out, the Tax 
Code's complexity is itself a significant source of noncompliance. The 
current Tax Code costs the Government revenue since even those who try 
their best to follow the rules, often end up underpaying tax because 
the rules are too complicated and difficult to decipher. Therefore, any 
solution to the tax gap must also require simplifying the Tax Code.
  A top priority I hear from small businesses across Maine and this 
country is the need for tax relief. Despite the fact that small 
businesses are the real job-creators for Maine's and our Nation's 
economy, the current tax system is placing an entirely unreasonable 
burden on them when trying to satisfy their tax obligations. The 
current Tax Code imposes a large, and expensive, burden on all 
taxpayers in terms of satisfying their reporting and record-keeping 
obligations. The problem, though, is that small companies are 
disadvantaged most in terms of the money and time spent in satisfying 
their tax obligation.
  For example, according to the Small Business Administration's Office 
of Advocacy, small businesses spend an astounding 8 billion hours each 
year complying with Government reports. They also 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 $1,304 per employee in tax compliance costs, an amount that is 
nearly 67 percent more than larger firms. A recent survey by the 
National Federation of Independent Businesses found that 88 percent of 
small-employer taxpayers used a tax professional and the two reasons 
small-employer taxpayers most frequently cite for using tax 
professionals are to assure compliance and the complexity of the law.
  For that reason, I have introduced a package of proposals that will 
provide not only targeted, affordable tax relief to small business 
owners, but also simpler rules under the Tax Code. By simplifying the 
Tax Code, small business owners will be able to satisfy their tax 
obligation in a cheaper, more efficient manner, allowing them to be 
able to devote more time and resources to their business.
  I have introduced legislation, S. 269, in response to the repeated 
requests from small businesses in Maine and from across the Nation to 
allow them to expense more of their investments, like the purchase of 
essential new equipment. My bill modifies the Internal Revenue Code by 
doubling the amount a small business can expense

[[Page S4592]]

from $100,000 to $200,000, and make the provision permanent, as 
President Bush proposed this change in his fiscal year 2007 tax 
proposals. With small businesses representing 99 percent of all 
employers, creating 75 percent of net new jobs and contributing 51 
percent of private-sector output, their size is the only ``small'' 
aspect about them.

  By doubling and making permanent the current expensing limit and 
indexing these amounts for inflation, this bill will achieve two 
important objectives. First, qualifying businesses will be able to 
write off more of the equipment purchases today, instead of waiting 5, 
7 or more years to recover their costs through depreciation. That 
represents substantial savings both in dollars and in the time small 
businesses would otherwise have to spend complying with complex and 
confusing depreciation rules. Moreover, new equipment will contribute 
to continued productivity growth in the business community, which 
economic experts have repeatedly stressed is essential to the long-term 
vitality of our economy.
  Second, as a result of this bill, more businesses will qualify for 
this benefit because the phase-out limit will be increased to $800,000 
in new assets purchases. At the same time, small business capital 
investment will be pumping more money into the economy. This is a win-
win for small business and the economy as a whole and I am pleased to 
have Senators Lott, Isakson, Chambliss and Collins join me as 
cosponsors of this legislation.
  Another proposal that I have introduced with Senators Lincoln and 
Lott, the Small Business Tax Flexibility Act of 2007, S. 270, will 
permit start-up small business owners to use a taxable year other than 
the calendar year if they generally earn fewer than $5 million during 
the tax year.
  Specifically, the Small Business Tax Flexibility Act of 2007 will 
permit more taxpayers to use the taxable year most suitable to their 
business cycle. Until 1986, businesses could elect the taxable year-end 
that made the most economic sense for the business. In 1986, Congress 
passed legislation requiring partnerships and S corporations, many of 
which are small businesses, to adopt a December 31 year-end. The Tax 
Code does provide alternatives to the calendar year for small 
businesses, but the compliance costs and administrative burdens 
associated with these alternatives prove to be too high for most small 
businesses to utilize.
  Meanwhile, C corporations, as large corporations often are, receive 
much more flexibility in their choice of taxable year. A C corporation 
can adopt either a calendar year or any fiscal year for tax purposes, 
as long as it keeps its books on that basis. This creates the unfair 
result of allowing larger businesses with greater resources greater 
flexibility in choosing a taxable year than smaller firms with fewer 
resources. This simply does not make sense to me. My bill changes these 
existing rules so that more small businesses will be able to use the 
taxable year that best suits their business.
  To provide relief and equity to our Nation's 1.5 million retail 
establishments, most of which have less than five employees, I have 
introduced a bill, S. 271, with Senators Lincoln, Hutchison, and Kerry 
that reduces from 39 to 15 years the depreciable life of improvements 
that are made to retail stores that are owned by the retailer. Under 
current law, only retailers that lease their property are allowed this 
accelerated depreciation, which means it excludes retailers that also 
own the property in which they operate. My bill simply seeks to provide 
equal treatment to all retailers.
  Specifically, this bill will simply conform the Tax Codes to the 
realities that retailers on Main Street face. Studies conducted by the 
Treasury Department, Congressional Research Service and private 
economists have all found that the 39-year depreciation life for 
buildings is too long and that the 39-year depreciation life for 
building improvements is even worse. Retailers generally remodel their 
stores every 5 to 7 years to reflect changes in customer base and 
compete with newer stores. Moreover, many improvements such as interior 
partitions, ceiling tiles, restroom accessories, and paint, may only 
last a few years before requiring replacement.
  Finally, I joined Senator Bond in introducing S. 296 that will 
simplify the Tax 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 recordkeeping 
requirements that they currently must undertake in reporting their 
income under a different accounting method.
  This package of proposals are a tremendous opportunity to help small 
enterprises succeed by providing an incentive for reinvestment and 
leaving them more of their earnings to do just that. Notably, providing 
tax relief by passing these simplification measures will also help us 
reduce the tax gap by increasing compliance. I urge my colleagues to 
join me in supporting these proposals.

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