By Emily Peterson-Cassin, Public Citizen
Our nation’s tax authority, the Internal Revenue Service (IRS) and its Commissioner , seem to be under constant attack from some members of Congress. That’s why it’s more important than ever for us to remember the agency’s role is simply to enforce the tax code that Congress enacted in the first place. Lawmakers appear happy to leave the IRS on the hook to interpret vague legislative language while concurrently trying to stop it from doing that very thing.
It’s obvious that the IRS should do its part to make sure the tax code is clear but it’s equally clear that Congress should not get in the agency’s way when it attempts to do just that. Yet, that’s exactly what happened when Congress stopped the agency from working to clarify the all-too-confusing rules regarding political activity of nonprofits. This is a shame because clearer, better tax rules help everybody, not just nonprofits.
That’s why I was pleased to have recently been given the opportunity to testify before the House Small Business Committee Subcommittee on Economic Growth, Tax, and Capital Access. I was able to make the case for clearer rules—to benefit everyone. Below are some snippets from my testimony; I hope you find it interesting!
I do not need to tell this committee how important small business is to our economy and our society. Protecting small business owners and employees is a paramount goal of our government. Congress can and should protect small businesses by ensuring a clear, predictable framework of rules and regulations. Easy to follow and enforce rules allow small businesses to thrive while minimizing opportunities to abuse the tax system. And the IRS should be doing more to ensure that small businesses can easily comply with the regulations already in existence, and work to improve its ability to provide accurate and timely guidance.
At the same time, it is important to recognize that rules intended to protect small businesses can have unintended effects. Laws that are intended to help small businesses, such as the RFA [Regulatory Flexibility Act] and SBREFA [Small Business Regulatory Enforcement Fairness Act], in practice can allow large corporations to delay important regulations and thus harm small businesses rather than help them.
Finally, while fair enforcement of regulations is critical for small business success, it is also important that we ensure that the tax code itself provides a level playing field for small business. Currently, loopholes in the tax code allow large entities advantages that smaller players do not have, and prevent small businesses from being fully competitive in the marketplace. These loopholes allow tax-avoidance by large corporations, and small entities that would rather spend their resources on building their business than on elaborate avoidance schemes cannot take advantage of them. For example, reforming the code to disallow complex corporate tax-avoidance schemes like inversions would help small businesses by leveling the playing field, so that small businesses can compete more fairly with big businesses.
In the full version of the testimony, I go into more detail on how regulations help small businesses and our society. I also discuss how certain specific laws operate to delay regulations and make them harder for regulated entities to follow and predict. I discuss how Congress’s failure to fully fund the IRS hurts small business, and I talk about how the tax code is stacked against small business.
The testimony concludes:
It is in our nation’s interest that small businesses are able to grow and thrive in a society that protects health and safety and ensures that the market operates fairly to businesses of all sizes. Small changes to SBREFA, fully funding the IRS, and closing unfair loopholes will ensure that the playing field is level for small businesses.
My full testimony can be read or watched on the Committee’s website.