4. Simplification of the tax laws would also be most welcome to small and medium business owners as well as their accountants. These businesses pay a higher cost (as percentage) for tax compliance than the largest corporations. In my discussions with business owners and their accountants across the country, I have been taken aback by how often some tax proposals — even tax proposals designed to benefit small business — are dismissed out of hand as being useless because the provision is so complicated.
5. Improve taxpayer rights for small-business owners. It is Pollyannaish to believe that even the most far-reaching tax reform would mean the elimination of the IRS. The creation of a fair tax, a flat tax or a value-added tax will not suspend the rules of human nature when it comes to people embracing the idea of writing a big check to the government. Congress has done a good job in recent years of improving the rights of individual taxpayers before the IRS. Tax reform should similarly provide a more balanced relationship between small-business owners and the IRS.
6. For purposes of long-term economic growth, we need to continue to encourage innovation. As the work of Nobel Prize-winning economist Robert Solow has shown, more than 85 percent of economic growth comes from innovation — applying research and development. A number of Organisation for Economic Co-operation and Development countries have shown that it is possible to have lower business tax rates and at the same time also have a robust research and development tax credit.
7. The tax code needs to encourage investment in new business. It is new business that is a particular strength for job creation as well as innovation.
Keeping in mind these seven principles when considering tax reform will go far in ensuring that such reform benefits small and medium businesses — the core of our nation’s economy.
Dean Zerbe is national managing director of alliantgroup, a provider of specialty tax services.