Tax Day blues: National business federation says small-business growth stifled by shaky tax code

The National Federation of Independent Business released a four-point fact sheet April 17 highlighting statistics that it says show small businesses continue to be hampered by uncertainty in the tax code and the threat of an increased tax burden next year.

The NFIB is a nationwide small-business association based in Washington, D.C.

It is online at www.nfib.com.

The National Federation of Independent Business’ Tax Day fact sheet

1. Tax uncertainty is a leading impediment to small-business growth. According to the April 2012 Small Business Economic Trends report, 20 percent of small businesses cited taxes as the single most important problem facing them today. A recent NFIB poll shows uncertainty is the second most important current external impediment to small-business growth; 22 percent of small-business owners said it is the single most important external impediment to growth. In member balloting, NFIB members overwhelmingly support extending the 2001 and 2003 tax rates.

2. Frequent changes to the tax code increase complexity and uncertainty. Congress continues to make changes to the tax code each year, and there is year-to-year uncertainty today over individual tax rates which affect most small businesses. Regular changes to the tax code lead most small-business owners to hire accountants—88 percent of small-business owners rely on a paid accountant to prepare their taxes. Constant changes to the tax code hinder long term planning and create uncertainty which prevents small businesses from making investments.

3. Tax compliance costs are a drain on small businesses. Small businesses spend on average $74 per hour to comply with the federal tax code—the most expensive paperwork burden imposed on small businesses by the federal government. Research by the U.S. Small Business Administration Office of Advocacy estimates it costs small businesses 206 percent more to comply with the tax code than it costs their larger counterparts. Small businesses spend between 1.7 billion and 1.8 billion hours on tax compliance with total estimated cost of between $15 billion and $16 billion annually. The U.S. tax code should be simplified to reduce compliance and accounting costs for small businesses.

4. Raising individual tax rates is a tax increase on small businesses. NFIB research shows more than 75 percent of small business are organized as S-corps., LLCs, LLPs or sole proprietorships, also known as “pass-through” businesses. More than 54 percent of the private sector workforce is employed by pass-through businesses. Raising individual rates directly impacts small businesses’ ability to re-invest in their firms and hire or retain employees.

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