A House panel on September 13 considered how expiration of the Bush tax cuts of 2001 and 2003 at the end of 2012 would impact small businesses. At a hearing of the House Small Business Subcommittee on Economic Growth, Tax and Capital Access, Chairman Joe Walsh, R-Ill., said letting the tax cuts expire would make many small pass-through businesses pay higher tax rates than some of the nation’s largest corporations. “Small businesses must also contend with uncertainty created by the expiration of the estate tax and how this unresolved policy issue affects long-term business planning,” Walsh said.
The subcommittee heard testimony from business owners and tax experts, including Jeffrey A. Porter, vice chair of the American Institute of Certified Public Accountants’ (AICPA) Tax Executive Committee, who testified that small businesses, formed as corporations, pass-through entities or sole proprietorships, are currently facing considerable uncertainty with regard to income taxes.
“This uncertainty is not limited to one or two tax provisions, but instead affects many areas of the [tax code], including income tax rates, long-term capital gains rates, the rate for qualified dividends, and whether, and to what extent, certain deductions, credits and exemptions will be available,” Porter said.
When small businesses face tax rate uncertainty, they are unable to estimate the true cost of purchasing new equipment, Porter explained. He said business owners want to understand the tax consequences of their transactions. “Multi-year planning and the ability to predict (or at least estimate) business profits and taxes are critical in operating a business,” Porter said. “It is also essential to know future income tax rates in structuring major business transactions such as in the sale of a business or its assets.”
Subcommittee ranking member Rep. Kurt Schrader, D-Ore., suggested that a complete revision of the tax code should level the playing field by evaluating the need for tax loopholes that small firms can rarely access. “Done correctly, thoughtful tax reform will have immediate benefits for small businesses while also serving the nation’s economic objective of promoting pro-growth policies,” he said.
By Stephen K. Cooper, CCH News Staff
House Small Business Committee Press Release: Opening Statement of Small Business Subcommittee on Economic Growth, Tax and Capital Access Chairman Joe Walsh Committee
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Testimony of Doug Harmon, CEO, Twin City Die Castings
Written Testimony of Scott A. Hodge, President, Tax Foundation
Written Testimony of Jeffrey A. Porter on Behalf of the AICPA