Hearing: IRS Latest Enforcement: Is the Bulls-Eye on Small Business?

Statement

Hearing: IRS Latest Enforcement: Is the Bulls-Eye on Small Business?

Thank you, Mr. Chairman.

With April 15 right around the corner, taxes are undoubtedly on everyone's mind. Today's hearing will focus on the tax gap - the difference between what the IRS is supposed to collect and what is actually collected. According to the IRS, the tax gap is estimated to be $345 billion per year and growing.

As the budget deficit mounts - around $400 billion - the administration is looking for ways to recover lost revenue that was supposed to come flowing in as a result of their fiscal policy. But it has not.

Unfortunately, it appears the administration is trying to make up for these shortfalls and balance the budget by unfairly targeting small businesses. Today, we will hear from the IRS about a plan in the President's FY 2007 budget to crack down on small firms by granting the IRS even greater authority for enforcement.

This proposal, while having a significant impact on entrepreneurs will only reduce the tax gap by 1/10th of 1 percent. This is a large price to pay for a solution that will not even fix the problem.

However, any attempt to solely blame the IRS is wrong. What seems to be lost in this discussion is the impact wrong policy choices - specifically tax policy - made by congressional Republicans and the administration, have had on this nation's small businesses.

While providing minimal relief for entrepreneurs, the bulk of the reform passed has only further complicated the process. It has added thousands of pages to the tax code, which will only exasperate the growing tax gap problem.

For proof, one only has to look at the 2004 tax bill. Even the Chairman of the Ways and Means Committee testified that this legislation set back efforts to simplify the tax code. Small businesses are being hit twice - once with the ever-increasing complexities of the tax code and again with the rising possibility of an audit.

Given the growing complexity, tax assistance is needed now more than ever for small businesses. Unfortunately, rather than providing assistance, the administration is closing taxpayer assistance centers. It simply does not make sense for the IRS to shift these resources when the complexity of the tax code is increasing.

Congress will be voting on the budget this week and we will see just how much commitment there is to fairness for small businesses. The question at hand is - will Members support the administration's budget proposal to further reduce tax compliance assistance efforts and impose strict enforcement efforts? Or will they reject these proposals?

While many in the President's party are more than happy to vote for his tax cuts and trump all the supposed good they are doing, when it comes to the consequences - increased compliance costs and a growing tax gap - they are vehemently opposed. Unfortunately, you simply can't have it both ways.

As has been the case with tax, energy and health care policy, the administration continually favors large corporations. It is no surprise that while the tax gap is not only made up of small business taxpayers, this administration lets the big corporations off the hook and instead focuses on entrepreneurs. At the same time, many small firms have little or no resources to defend themselves.

Small businesses are the drivers of this nation's economy, and they deserve every effort possible to decrease the burdens they face. If the goal today is to reduce the costs to small business, Congress should first look to reduce the complexity of the tax code.

Most entrepreneurs are doing everything they can to pay the taxes they owe. They should not be blamed for the tax gap. This administration needs to come to terms with the role their policies have had in furthering the tax gap. They need to admit the problem - then work to reduce the effects - rather than point the finger, which is exactly what is happening with this current debate.

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