Tax Code Complexities Continue to Create Challenges for Small Businesses

Tax Code Complexities Continue to Create Challenges for Small Businesses

Democrats point to administration's policies as contributing factor to growing tax gap

WASHINGTON - The House Small Business Committee held a hearing today on the tax gap and the Bush administration's FY 2007 budget proposal to close that gap by increasing enforcement on small businesses. Democrats on the Committee pointed out that a significant contributing factor to the growing tax gap has been the Republican's tax policy, which has caused the federal deficit to spiral out of control and increase the complexity of the tax system.

"With a budget deficit that has reached nearly $400 billion annually, the tax gap has become a very real concern," said Congresswoman Nydia M. Velázquez, Ranking Democrat on the House Small Business Committee. "But in an effort to try to make up for their deficit woes, the administration is wrongly focusing on small businesses as a scapegoat for their troubles. This is not the answer for our nation's entrepreneurs, who already face enough challenges."

While the last two Congress' have passed legislation providing significant changes to the tax code, small businesses have seen very little relief. The reality is that the high cost of nearly $2 trillion in tax cuts over the past five years has created a budget deficit, which has slowed the economy and yielded even less savings for small businesses. Despite this series of tax cuts, entrepreneurs have received little, if any, relief - with only 1 percent of all small firms seeing any benefit from the top rate cut. In addition, one of the consequences of these new tax policies is the added burden of increased compliance costs and complexity in the tax code. In the 108th Congress alone, there were a reported 900 tax law changes. This has left many entrepreneurs facing increased costs and time requirements to comply with the existing tax code - forcing them to spend more funds on hiring accountants and attorneys, and leaving them with less time and money to invest back into their firms.

Velázquez pointed out that while the growing tax gap has been exacerbated by the administration's tax policies, Republicans in Congress have done little to ease this burden - and continue to support the President's misguided proposals. Rather than increasing funding for taxpayer assistance and educational programs to deal with tax code complexity and compliance, the Bush administration's FY 2007 budget has proposed increasing enforcement on small businesses. This proposal would have a significant impact on small business taxpayers in terms of time and money spent on compliance, yet only reduces the tax gap by one-tenth of 1 percent. Congresswoman Velázquez said that, "this is a large price for small business owners to pay when it does not even provide a real fix for the problem."

"How ironic is it that the President is proposing cuts to the very programs designed to help ease the burden on small businesses created by an increasingly complex tax code," Congresswoman Velázquez said. "If the administration and Congressional Republicans truly wanted to help entrepreneurs, then they need to realize the impact that their policies have had on the growing tax gap. After all, small businesses are the drivers of this nation's economy and they deserve every effort possible to help them achieve success."

http://www.house.gov