[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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