From: John Bucelato <bucelato@cox.net>
Date: May 7, 2010 11:11 AM
Subject: Congressional Testimony on Taxes
Dear Daily News;
I have not seen anything about this in our local paper.
I would suggest this would be an excellent story to run with a follow
up on small businesses in the Tidewater area.
As the past Chairman of the Hampton Roads SCORE Chapter, I am acutely
aware of the presence and impact of small business in our area.
I look forward to seeing something in the paper in the near future.
Regards,
John Bucelato
301 Willards Way
Yorktown, VA 23693
________________________________
From: John Bucelato [mailto:bucelato@cox.net]
Sent: Friday, May 07, 2010 10:53 AM
To: John Bucelato
Subject:
Importance: High
And to add insult to injury go to the paragraph towards the end of the
testimony entitled … Bureaucratic Burden hurts Small Businesses
This is a Testimony On Taxes
Small Businesses Face Steep Tax Hikes Unless Congress Acts Soon
Published on May 6, 2010 by Curtis Dubay
Testimony before
Committee on Small Business
United States House of Representatives
May 5, 2010
Madame Chairwoman, Members of the Committee, thank you for the
opportunity to testify on what can be done through federal tax policy
to help small businesses. My name is Curtis Dubay. I am tax economist
at The Heritage Foundation, a non-profit research organization based
in Washington with over 650,000 members nationally and growing
rapidly. The views I express in this testimony are my own, and should
not be construed as representing any official position of The Heritage
Foundation.
Many small businesses are struggling to survive as economic recovery
remains slow. The primary focus of economic policy should be to
improve the health of the overall economy. There is much the federal
government can do in this regard, and mostly it involves allowing the
recovery to continue without the threat of punitive new taxes and
burdensome new regulations. Reducing the budget deficit solely through
spending reductions would also benefit the overall economy by reducing
the threat of a sovereign debt crisis here in the U.S. such as is now
underway in Greece and threatening Portugal, Spain, and other
countries. Eliminate these threats and small businesses will then
thrive as the recovery quickens its pace.
There are far more types of small businesses engaged in more kinds of
economic activity than Congress can devise special tax benefits to
help. This sort of one-off, micro-managing, tinkering policy may gain
a headline and support, but it will not help small businesses broadly.
What they need first and foremost is lower tax rates. Therefore, it
would be irresponsible for Congress to raise their tax rates now, but
that is just what Congress is planning to do.
On January 1, 2011, the tax rates facing small businesses are set to
jump, destroying jobs and lowering wages. The top two income tax rates
now stand at 33 percent and 35 percent, but will rise to 36 percent
and 39.6 percent. These increases will hit small businesses hard. A
widely propagated myth contends that raising top tax rates has little
effect on small businesses because only a small percentage of them pay
rates at that level. But the number of businesses that pay top rates
is economically meaningless because so many small businesses represent
the part-time efforts of their owners. An economically meaningful
measure shows that raising top income tax rates would slam the small
businesses that contribute the most to our economy.
According to the Treasury Department and as shown in the chart below,
8 percent of small businesses pay the highest two tax rates. But those
businesses earn 72 percent of all small business income and pay 82
percent of all income taxes paid by small businesses.[1]
The small businesses that will pay higher taxes earn an overwhelming
majority of small business income and employ most of the workers hired
by small businesses. It is these businesses that the economy needs to
create new jobs and ramp up economic growth after the severe
recession. Higher tax rates would drain the businesses of cash flow,
the lifeblood of any business, and would diminish the incentives to
grow and add new workers.
Raising rates on these successful businesses would damage the economy
at any time, but doing so now when the unemployment rate is starkly
elevated and the recovery just underway is stunningly foolish.
Instead, at the very least President Obama and Congress should drop
their plans to increase top tax rates on small businesses and make
permanent the current-law tax rates for all taxpayers. This would
eliminate yet another threat facing small businesses seeking to
survive in some cases, in others to expand and add new jobs. This
would be the best stimulus for the economy to date.
Lower Taxes on Capital Would Help Small Businesses
In addition to higher income tax rates, Congress is threatening to
raise taxes on productive capital for small businesses. Capital is any
resource that individuals or businesses use to create a good or
provide a service. Like anything else, when the income accruing to
capital is taxed, its user price rises and less of it is purchased.
That means small businesses have less productive capability, grow
slower, and pay lower wages. As such, taxes on capital should be
minimal or nonexistent.
The current tax code taxes capital heavily. It taxes capital through
the capital gains tax and taxes on dividends, both at 15 percent, and
through taxes on business income and the corporate income
tax—especially because businesses cannot deduct the full cost of the
capital they buy, but must depreciate it over several years at a lower
real value.
Under current law, the tax rate on capital gains will increase to 20
percent and that on dividends will increase to up to 39.6 percent on
January 1, 2011. Congress should at the very least hold these rates at
15 percent. To lower the cost of capital for small businesses further,
Congress should consider lowering the rate on capital gains and
dividends below 15 percent and make permanent President Obama's plan
to provide immediate small business expensing of all capital
purchases.
Targeted Tax Cuts No Substitute for Low Rates
Many in Congress would prefer to offer targeted tax credits to
specific small businesses instead of keeping income tax rates and
taxes on capital low for all small businesses. But targeted tax cuts
are no substitute. Targeted tax credits for small businesses that
produce or sell certain items do not stimulate the economy or assist
small businesses in general. They are corporate welfare for certain
businesses that produce and sell goods that Congress deems beneficial.
When Congress provides tax breaks for only certain businesses it is
picking economic winners and losers instead of allowing the
marketplace—the traditional and wiser decision maker in such
matters—to decide. It does so because the targeted tax credits give
their recipients an advantage in the market compared to the businesses
not fortunate enough to receive the tax break. The businesses that get
the credit can keep their prices lower than they otherwise would
without the credit.
Furthermore, in the current budgetary environment, since targeted tax
cuts would be financed by adding to the deficit instead of reducing
spending, the increased borrowing would take available funds away from
other businesses. These other businesses could have used the funds to
expand operations and add new jobs, but Congress will divert the
resources to the businesses it prefers.
Congress should not be the arbiter of which businesses succeed and
which do not. Its track record of making such choices is far from
exemplary, and further efforts to move the market in the direction it
desires could actually prevent breakthroughs that would benefit the
economy and the United States.
The economy will recover eventually, and when it does the sales and
profitability of small businesses will improve. At that time, targeted
tax incentives will do nothing for the vast majority of small
businesses that are ineligible to claim the tax breaks. For these
businesses, and the economy as a whole, it is better to have low tax
rates. That way, Congress is not influencing economic outcomes or
engaging in corporate welfare, and small businesses have the proper
incentives to expand operations, create jobs, and increase wages.
Resurrection of Death Tax Major Issue for Small Businesses
In addition to higher tax rates, small businesses may face higher
death tax bills in the near future. The death tax expired for one
year, beginning on January 1, 2010, and returns in full force on
January 1, 2011. The death tax is a drag on America's small
businesses, destroys jobs, and lowers wages while raising little
revenue. As such, Congress should repeal the estate tax once and for
all to remove an unfair burden from the backs of American small
businesses and their workers.
When Congress passed the death tax in its modern form in 1916, it was
supposed to prevent the buildup of wealth in a concentrated number of
families and be a new source of revenue.[2] But in today's modern
global market, the well-off are more likely to accumulate wealth by
creating new and innovative products demanded by the expanding global
market than through inheritance.
For instance, of the Americans in the top 25 of the Forbes list of
billionaires, only those in the Walton family (Wal-Mart) inherited
their fortunes.[3] The rest—including Bill Gates (no. 1), Warren
Buffett (no. 2), Lawrence Ellison (no. 4), Michael Bloomberg (no. 17),
and Michael Dell (no. 25)—earned their fortunes by taking risks and
through innovation, business acumen, and hard work. Because wealth
creation is so widespread, and not restricted to family lines or a
lucky few that hit it big, the estate tax is largely irrelevant to
ensuring a more equal distribution of wealth—assuming that was a
defensible policy goal.
Despite the common misconception that the death tax impacts only
wealthy estates, economists now generally agree that it is actually a
tax on capital because of its impact on businesses and workers.[4]
Capital—whether it is cash, equipment, or other types of property—is
necessary for businesses to create new jobs and pay higher wages.
There is a general consensus among economists that taxing capital is
harmful to the economy.[5]
A recent study found that a full repeal of the death tax would create
1.5 million jobs.[6] This is half the number of jobs President Obama
claimed the $800 billion stimulus package would create—at one-fifth
the price.
Additional benefits from full repeal of the death tax include:
Increasing small business capital by over $1.6 trillion;
Increasing the probability of hiring by 8.6 percent;
Increasing payrolls by 2.6 percent;
Expanding investment by 3 percent; and
Slashing the current jobless rate by 0.9 percent.
The death tax also impedes economic growth because it stands opposed
to the principles of virtue, thrift, and savings that made America the
strongest nation on earth. For those Americans who think that their
estates may one day pay federal death taxes, the death tax increases
their incentive to consume their wealth today rather than invest and
make more money in the future. Instead of putting their money in the
hands of entrepreneurs or investing more in their own economic
endeavors, Americans get the unmistakable message to consume it
now.[7]
It is time for Congress to kill the death tax once and for all. Doing
so would lift a tremendous weight off the shoulders of America's small
businesses, create jobs for out-of-work Americans, and help the ailing
economy.
Health Care Bill Adds New Burden on Small Businesses
Small businesses are not only dealing with potential damaging tax
hikes, but now that President Obama has signed into law the Patient
Protection and Affordable Care Act (PPACA) of 2010, small businesses
can expect substantial tax increases in the near future. Combined, all
of the tax increases in the PPACA (including those on employers that
do not provide health insurance for their employees and on individuals
who do not buy health insurance) will cost taxpayers $503 billion
between 2010 and 2019.[8] Small businesses, their customers, and their
workers will pay many of these higher taxes.
These tax hikes will slow economic growth, reduce employment, and
suppress wages. By delaying the effective date for most of these new
taxes, the President and Congress have shown themselves unwilling to
implement these taxes on their own watch, raising doubts as to whether
future Presidents and Congresses will be willing to do so. This
increases even further the likelihood that this bill will
substantially increase the deficit, which would break another Obama
promise.
Bureaucratic Burden hurts Small Businesses
A little noticed provision added to the PPACA will burden small
businesses with new paperwork:
Under current law, businesses are required to issue 1099s in a limited
set of situations, such as when paying outside consultants. The health
care bill includes a vast expansion in this information reporting
requirement. Businesses will now have to issue 1099s whenever they do
more than $600 of business with another entity.[9]
Small businesses will now have to issue possibly billions of new forms
to the IRS. While large businesses can absorb the cost of this new
bureaucracy with their large legal and accounting teams, the new
requirements will slam small businesses hard. The paperwork burden
will force small businesses to redirect scarce resources from
productive activities that could grow the business, add jobs, and pay
higher wages to complying with the onerous new reporting requirements.
Tax Extenders Excuse to Raise Taxes Each Year
Each year about 45 tax provisions, collectively known as the "tax
extenders," expire. These tax provisions, which apply to both
individuals and businesses, include popular measures such as the
research-and-development credit. Each year Congress must extend these
laws to avoid tax increases on small businesses, hence their name "tax
extenders."
Congress retains the tax extenders annually—but not before much
hand-wringing about their supposed cost and even more haggling about
paying for them with increases in other taxes. Congress should
remember that continuing the tax extenders for another year is not a
tax cut and that there is no need to pay for them with tax hikes.[10]
Congress should permanently extend all the expiring provisions it
deems good tax policy and let the others expire. Congress should avoid
any net tax hike, however, so for those provisions that it allows to
expire, it should cut other taxes. Lowering marginal income tax rates
would be the best course, since that would help spur the
still-struggling economy[11] and it would directly help small
business. The yearly threat of a tax hike ties the hands of many small
businesses and holds them back from making important business
decisions. A permanent extension of the tax extenders would provide
stability for small businesses to plan for the future.
--
Alexander of York
