Senate lawmakers convened a hearing of tax policy experts Wednesday to examine ways to reform the tax code so that it promotes small business growth.

Republicans have made tax reform a major policy priority since securing control of the government. The need for tax reform tends to be a bipartisan position, but the two parties often disagree on some key policies. The Senate Small Business and Entrepreneurship Committee arranged the hearing to explore the best approach for small businesses.

The hearing primarily focused on ensuring small businesses are considered in the current push to lower corporate tax rates. The Small Business Administration found that small businesses make up a sizable portion of the national economy at 49.2 percent of private-sector employment.

“As we all know, our tax code is in need of reform,” New Hampshire Democratic Sen. Jeanne Shaheen, the ranking member of the committee, said at the start of the hearing. “As Congress considers tax reforms, we need to make sure small businesses are at the table.”

President Donald Trump promised to simplify the tax code and reduce rates to help spur economic growth. The administration released a summary of its plan April 26. House Speaker Paul Ryan and Rep. Kevin Brady introduced a blueprint last year which mirrored many of the same ideas.

“Tax relief should not mean a reduction for C Corporations only,” Annette Nellen, executive committee chairwoman of the American Institute of Certified Public Accountants, testified. “Congress should encourage, or at least not discourage, the formation of sole proprietors and pass through entities. If Congress decides to lower the corporate tax rate, small businesses should receive a lower rate as well.”

Nellen included a number of other suggestions in her written testimony. She argues tax reform should focus on fairness, certainty, convenience, information security, simplicity, economic growth, transparency, accountability, and should ensure government revenue is appropriate.

There are several different types of small businesses. S corporations, for instance, are closely held companies, meaning shares are given and traded privately. A limited liability company (LLC) is a corporate structure commonly used among small business owners. These businesses are also known as pass-through entities.

Pass-through businesses are not subject to federal taxes like a public corporation would be. The businesses owners are, instead, directly taxed on their income. That tax is based on their share of the profits and losses. It’s a model that is often used by small businesses.

“Small businesses are really big,” S Corporation Association President Brian Reardon said during the hearing. “The pass through sector, which is S Corporations, partnerships, LLCs, and sole proprietors, they employ more people, they employ the majority of private-sector workers in the country.”

The House Ways and Means Committee explored the need for tax reform last month. Business leaders discussed how tax reform could spur economic growth generally. The hearing highlighted how the United States has increasingly become less competitive globally in the years since its last major tax overhaul in 1986.

“The current tax system, especially as it applies to business income, is woefully out of date,” Urban-Brookings Tax Policy Center Director Mark Mazur said during the hearing. “Three decades of changing business practices increased globalization, and expanding aggressiveness in tax planning activities has led to this current situation.”

The economy looks radically different than it did when the tax code was last changed. Technological advancements have opened up new opportunities like in the information technology sector. Technology has also allowed the world to connect more easily, which has created a more open global economy.

The Congressional Budget Office (CBO) found in an analysis that many other developed countries have been moving towards a more competitive tax system for over a decade. The United States, however, has done little to its tax code to stay competitive during that time.

The National Taxpayers Union highlighted the need for tax reform in a letter Tuesday to Congress. The letter urged lawmakers to cut the corporate tax rate, move to a territorial system, and allow full expensing on business purchases. The border adjustment tax is one type of territorial system that is currently being debated.

“Lawmakers should work to find tax solutions for small businesses, including lowering corporate and small business rates to allow smaller companies to compete on an even playing field in a crowded market,” the American Council for Capital Formation said in a statement provided to InsideSources prior to the hearing. “Additionally, lawmakers should examine the benefits of switching to a territorial system.”

The border adjustment tax is a value added tax levied on imported goods. It is essentially applied when a product is produced in a foreign country but sold domestically. It has become a major point of contention among some on the right with critics warning it could hurt consumers by increasing costs.

The Business Roundtable found in a survey that business owners would begin investing more back into their companies and employees if the tax system was reformed successfully. National Taxpayers Union Foundation found in a 2015 study that the economy loses $233.8 billion annually from hours spent doing taxes.

The tax system is incredibly complex which forces companies to spend time and additional resources in order to comply with the law. A simplified tax code could potentially save companies on those additional costs that weren’t going to increase government revenue anyway.

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