428A Russell Senate Office Building 10:00am EST
Chairman David Vitter
As Chairman of the Senate Small Business and Entrepreneurship Committee, I have the pleasure of partnering with small business owners and their advocates to address important small business issues. In my discussions with the small business community, there is one issue that is raised more than any other and that impacts every small business regardless of size or industry: and that is the burden of tax compliance.
The administrative burden of tax compliance is now a greater strain on small businesses than their actual tax liability. I don’t need to tell the business owners here today about that burden because you all feel it every day and so does every other small business in America.
The federal tax code is approximately 74,000 pages or 4 million words long and is continuing to grow. Under the current administration, it’s already grown approximately 7,000 pages with no end in sight. And just for some historical perspective, the code was only 400 pages when it was first created. While it’s convenient to think that only the company’s CPA needs to be able to navigate such a behemoth, the reality is that the business owner must be up-to-date on all of the yearly changes in order to stay in compliance. I think it’s safe to say that every single business owner would much rather focus his or her time and energy on growing the company.
Next, according to the National Federation of Independent Businesses, small businesses annually spend 1.7 billion hours on tax compliance and approximately $15 billion on compliance costs.
Bringing it down to hours we can actually wrap our heads around, nearly forty percent of small businesses spend 80 hours or more a year on tax compliance, and a quarter of all small businesses spend more than 120 hours. That doesn’t even take into account state and local income, sales, and property taxes they must file. Imagine if those billions of hours spent complying with IRS could be spent on actual business strategy and growth and what that would mean for our national economy.
Finally, the cost of compliance to small businesses is 70% higher than bigger firms and the reason is simple: small businesses don’t have the army of accountants and tax attorneys that “too big to fail” businesses and banks have at their disposal to exploit every nook and cranny of the code. Instead, they may only have the owner and a few others concentrating on the business side and if you are really fortunate, a CPA or two on payroll to focus on the taxes. In fact, roughly a third of all small businesses spend more than $10,000 just on federal tax administration and half spend more than $5000.
So, just to recap and offer some perspective on what a typical small business owner may face in order to be in compliance: it’s equivalent to navigating over five King James Bibles, over two 40 hour work weeks, and the cost of taking your family to Disneyworld, just for a small business owner like the ones here today to comply with federal tax law each year. And I haven’t even mentioned the actual taxes themselves and how much those cost you.
While broad tax reform is certainly needed, small businesses shouldn’t have to wait for wholesale reform to have these compliance related issues resolved; Congress can, and should, address them right now.
In response, today I filed the Small Business Tax Compliance Relief Act to address many of the compliance related issues raised by small businesses that continue to go unresolved. Unlike many previous small business tax bills, this legislation does not seek to alter tax rates or pursue wholesale reform.
Instead, it provides relief from those provisions most often cited as overly restrictive, confusing, or just purely nonsensical for a small business. These are issues that have been raised at previous committee hearings and small business roundtables and that represent real solutions to real problems and I am confident they will be a first step towards removing that burden altogether.
And even though wholesale reforms and tax rates aren’t touched, small businesses have indicated that addressing these issues would be a significant win and would reduce their compliance burden in a substantive way; or in terms we can all understand, it helps a small businesses’ bottom line. In addition, many of these provisions enjoy broad business support as evidenced by the many small business advocacy groups – national, regional, and local – that have signed on to support it.
Small businesses are the job creators across America, but when you consider the burden of tax compliance that’s placed on their shoulders you may wonder how small businesses stay open at all.
It’s an unfortunate truth, but Congress and the IRS simply do not lean towards the opinions of small businesses when crafting laws and regulations. But as Chairman of the Senate Small Business Committee, I’ve been working to change that and that is what this hearing is all about today.