NSBA Submits Detailed Tax Reform CommentsJuly 31, 2013
On July 31, NSBA submitted comments to Senate Finance Committee Chairman Max Baucus (D-Mont.) and Ranking Member Orrin Hatch (R-Utah) in response to their call for input on their so-called “blank slate” approach to broad tax reform. Announced in late-June, Baucus and Hatch requested comments from lawmakers and stakeholders by the end of July, stating that they “are determined to complete tax reform in this Congress,” or by the end of next year.
The general premise of their approach is based on the fact that there have been 15,000 changes to the code since its last major revision in 1986 creating a tax code that is wildly complex, costly, inefficient, unfair and stifles economic growth. Despite the fact that both men believe that certain tax incentives or preferences serve important policy objectives, they plan to operate from an assumption that all special provisions are out unless there is clear evidence that they: (1) help grow the economy, (2) make the tax code fairer, or (3) effectively promote other important policy objectives.
In its letter, NSBA underscored that simplifying the tax code and reducing the tax and compliance burden is among small businesses top issues for Congress and the administration to address. Because administrative burdens—complexity—rank higher than the actual financial burden of the tax code, NSBA placed the utmost importance on simplification and broad reform.
A strong, and long-time supporter of fundamental tax reform, NSBA’s letter cites the myriad benefits from a true, broad reform of the current system, including increased revenues, reduced spending, eased compliance costs, leveling the playing field between foreign and domestic manufacturers and eased exporting. NSBA also defined what true tax reform is, and what it is not. As such, NSBA outlined its tax reform principles and urged lawmakers to seriously consider the Fair Tax.
NSBA’s comments also highlighted the difference between how small businesses pay taxes (83 percent are pass-throughs and therefore pay taxes on business income at the owners’ individual income level) vs. how C corporations pay taxes and why tinkering with just one piece is a nonstarter for small business.
As requested by Baucus and Hatch, NSBA outlined a handful of tax provisions and how they ought to be treated if—as is likely given today’s political environment—a true, broad reform isn’t achieved. Those key provisions are:
- Reduce marginal tax rates on business income
- Expand and make permanent section 179 Expensing
- Preserve adequate capital cost recovery allowances
- Eliminate the health insurance tax imposed by the Patient Protection and Affordable Care Act
- Revise the health insurance exclusion to incorporate more consumerism
- Retain last-in-first-out (LIFO) accounting
- Retain the cash method of accounting for small firms
- Repeal the estate tax or—at a minimum—extend a fully indexed exemption of $3.5 million
- Allow the self-employed to fully deduct the cost of their health insurance
- Repeal guaranteed payments rules
- For S Corporations: Eliminate the one class of stock restriction, increase the shareholder limit and allow non-resident shareholders
- Simplify the process for filing S-corporation elections
- Simplify retirement savings plan rules for small business
- Streamline and simplify tax return due dates for all pass-throughs
Please click here to view the full letter from NSBA.
Please click here for NSBA’s proposal on broad tax reform.
Please click here to learn more about the NSBA-supported Fair Tax.