STATEMENT
of the
Honorable Nydia M. Velázquez
Hearing on Tax Code Reforms: What Has Been Accomplished
and
What Remains to be Done
House Committee on Small Business
July 23, 2003
Thank you, Mr. Chairman.
Small businesses are the engine of this economy.
They are key to our recovery. Unfortunately, they face many
challenges today, including inequities in federal contracting,
health care, federal regulations - and the U.S. tax code.
Small businesses account for 44 percent of
all federal revenue, yet they must deal with the upfront
cost of taxes in addition to high compliance costs. With
regard to tax compliance, there is a substantial gap between
costs to large and small firms. The costs per employee for
small businesses topped the costs for large firms by 114
percent.
The tax code does not have to operate in a
manner to stifle growth. It can be used as tool to ensure
that this nation's small business are able to offer quality
health care and comprehensive retirement plans to their
employees, as well as provide incentives to re-invest their
cash back into their businesses.
However, the current tax code has done more
to impede small business growth, than encourage it. This
stems from the complexity of the tax code as well as the
IRS' continual failure to address the impact its rules and
regulations have on small businesses. As a result, small
businesses are left to outsource their complex tax work,
which is extremely costly.
Earlier this year, this Committee looked at
the ways the IRS has consistently failed to comply with
the Regulatory Flexibility Act. Today, we will look beyond
the regulatory structure and examine how we can change the
Internal Revenue Code to account for the needs of small
businesses.
Not only has the IRS failed to address the
needs of small businesses in issuing their rules and regulations,
but Congress has also failed to consider the adverse effects
that the tax code has on small businesses. Too often, our
laws - though well-intended - unfairly harm small businesses
because of the one-size-fits-all approach. We must hold
ourselves accountable for the burden that we place on small
businesses and rectify these inequities.
In 2001, National Small Business United released a groundbreaking
report entitled, "The Internal Revenue Code: Unequal
Treatment Between Large and Small Firms." This report
reinforced what small businesses had been claiming for years
- the U.S. tax system fails them.
This study showed how the Internal Revenue
Code unfairly puts small businesses at a disadvantage in
comparison to large firms and outlined reforms for fixing
the system. Whether it is deductibility of health care for
the self-employed, expensing meals and entertainment, or
standard home office deductions - small businesses aren't
able to reap the same benefits as their corporate counterparts.
This tax report was a tremendous step forward
in exposing the unfairness this system poses for small businesses
today. I was so impressed it that I made sure every Member
of Congress received a copy.
However, to get the changes suggested in this
report passed into law, small businesses need the support
of the administration. In March 2002, President Bush released
his small business agenda, promising that he would simplify
the tax code and provide small businesses with the relief
they need. Although the administration voiced its commitment
to helping small businesses get the tax relief they have
long been asking for, recent moves have shown just the opposite.
The 2003 tax cut is a perfect example. The
President had a $350 billion pie with which to provide at
least offer some tax relief to small businesses. Instead,
the bulk of the bill was aimed at providing tax relief to
large corporations in the form of a dividend tax cut.
The small business relief that was in the
tax cut was completely inadequate. The two provisions specifically
aimed at small businesses - the bonus depreciation and increased
expensing - both expire after only a few years. And not
one of the proposals in the NSBU report was passed into
law. Small businesses deserve better.
Today's hearing is an opportunity to assess
the real impact of the U.S. tax code on our nation's small
businesses. The president claims that a reduction in the
top rate is a reduction in taxes for small business owners.
However, the 2001 cuts failed to impact the growth of small
business and the acceleration of these tax cuts in the 2003
package will do little to enhance the prosperity of small
business owners and their employees.
It is possible to use targeted tax cuts to
create investment without having a cost to the budget. This
is why we must take a close look today at the changes that
can help small businesses, which are such a driving force
in strengthening our economy. Now more than ever, we need
to be able to depend on our small businesses - and we cannot
afford to continue letting them carry these unfair burdens.
