Paying Their Fair Share: How Tax Hikes Crush the Competitiveness of Small Businesses (House Small Business Committee hearing, April 18, 2023)
Summary
The printed record of a House Committee on Small Business hearing, Small Business Committee Document Number 118-008, titled Paying Their Fair Share: How Tax Hikes Crush the Competitiveness of Small Businesses, held April 18, 2023 in the 118th Congress, with Chairman Roger Williams presiding from 2:00 p.m. The witnesses are Lynn Mucenski Keck of Withum, Russell Boening of the Texas Farm Bureau, Warren Hudak of Hudak & Company and Anne Zimmerman of Zimmerman & Co CPAs Inc. The appendix holds their prepared statements, questions and answers for the record with Zimmerman, and additional material from groups including the National Federation of Independent Business, the National Taxpayers Union and Small Business Majority. The committee adjourned at 4:08 p.m.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
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“Paying Their Fair Share: How Tax Hikes Crush the Competitiveness of Small Businesses (House Small Business Committee hearing, April 18, 2023).”
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PAYING THEIR FAIR SHARE: HOW TAX HIKES
CRUSH THE COMPETITIVENESS OF SMALL
BUSINESSES
HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
HEARING HELD
APRIL 18, 2023
Small Business Committee Document Number 118–008
Available via the GPO Website: www.govinfo.gov
U.S. GOVERNMENT PUBLISHING OFFICE
51–814 WASHINGTON : 2023
HOUSE COMMITTEE ON SMALL BUSINESS
ROGER WILLIAMS, Texas, Chairman
BLAINE LUETKEMEYER, Missouri
PETE STAUBER, Minnesota
DAN MEUSER, Pennsylvania
BETH VAN DUYNE, Texas
MARIA SALAZAR, Florida
TRACEY MANN, Kansas
JAKE ELLZEY, Texas
MARC MOLINARO, New York
MARK ALFORD, Missouri
ELI CRANE, Arizona
AARON BEAN, Florida
WESLEY HUNT, Texas
NICK LALOTA, New York
NYDIA VELÁZQUEZ, New York, Ranking Member
JARED GOLDEN, Maine
KWEISI MFUME, Maryland
DEAN PHILLIPS, Minnesota
GREG LANDSMAN, Ohio
MORGAN MCGARVEY, Kentucky
MARIE GLUESENKAMP PEREZ, Washington
HILLARY SCHOLTEN, Michigan
SHRI THANEDAR, Michigan
JUDY CHU, California
SHARICE DAVIDS, Kansas
CHRIS PAPPAS, New Hampshire
BEN JOHNSON, Majority Staff Director
MELISSA JUNG, Minority Staff Director
(II)
CONTENTS
OPENING STATEMENTS
Page
Hon. Roger Williams ................................................................................................ 1
Hon. Nydia Velázquez ............................................................................................. 3
WITNESSES
Ms. Lynn Mucenski Keck, Principal & National Lead, Federal Tax Policy,
Withum, Bethesda, MD ....................................................................................... 6
Mr. Russell Boening, President, Texas Farm Bureau, Waco, TX ........................ 8
Mr. Warren Hudak, President, Hudak & Company, Camp Hill, PA .................. 9
Ms. Anne Zimmerman, Founder & Owner/Co-Chair of Small Business for
America’s Future, Zimmerman & Co CPAs Inc., Cincinnati, OH .................... 11
APPENDIX
Prepared Statements:
Ms. Lynn Mucenski Keck, Principal & National Lead, Federal Tax Policy,
Withum, Bethesda, MD ................................................................................ 41
Mr. Russell Boening, President, Texas Farm Bureau, Waco, TX ................. 35
Mr. Warren Hudak, President, Hudak & Company, Camp Hill, PA ........... 54
Ms. Anne Zimmerman, Founder & Owner/Co-Chair of Small Business
for America’s Future, Zimmerman & Co CPAs Inc., Cincinnati, OH ....... 60
Questions and Answers for the Record:
Questions from Hon. Mfume and Answers from Ms. Zimmerman ............... 66
Additional Material for the Record:
American Rental Association ........................................................................... 70
American University ........................................................................................ 74
National Association of Manufacturers .......................................................... 80
National Federation of Independent Business ............................................... 85
National Taxpayers Union ............................................................................... 219
Small Business Majority .................................................................................. 225
Small Software Business Coalition ................................................................. 227
(III)
PAYING THEIR FAIR SHARE: HOW TAX HIKES
CRUSH THE COMPETITIVENESS OF SMALL
BUSINESSES
WEDNESDAY, APRIL 18, 2023
HOUSE OF REPRESENTATIVES,
COMMITTEE ON SMALL BUSINESS,
Washington, DC.
The Committee met, pursuant to call, at 2:00 p.m., in Room
2360, Rayburn House Office Building, Hon. Roger Williams [chair-
man of the Committee] presiding.
Present: Representatives Williams, Luetkemeyer, Alford,
Stauber, Meuser, Bean, Van Duyne, Ellzey, Mann, LaLota,
Velázquez, Mfume, Landsman, Gluesenkamp Perez, Scholten,
Thanedar, Chu, Davids, and Pappas.
Chairman WILLIAMS. I want to welcome everybody here. And
before we get started I want to ask everyone to stand for the
Pledge of Allegiance and a quick prayer.
I pledge allegiance to the flag of the United Sates of America.
And to the Republic for which it stands, one nation, under God, in-
divisible, with liberty and justice for all.
Please bow your head.
Heavenly Father, God of all people, thank you for allowing us to
be here today to have dialogue, to have debate about how to make
this great country better. In your name we pray. Amen.
I now call the Committee on Small Business to order.
Without objection, the Chair is authorized to declare a recess of
the Committee at any time.
I now recognize myself for an opening statement.
Good afternoon, and welcome to today’s hearing where we will be
examining the tax landscape for small business. First, I want to
thank our witnesses for joining us today. Your time here is greatly
appreciated.
This hearing could not come at a more important time for Main
Street America. Our nation’s small businesses are facing unprece-
dented levels of inflation, interest rates that are being raised at the
fastest pace since the 1980s, a labor shortage that has windows
plastered with Help Wanted signs across the country, and now an
increasingly uncertain credit environment.
As a small business deal with these economic headwinds, it is
imperative that our tax code works for our nation’s job creators, not
against them. When businesses can keep more of their hard-earned
money, they hire more people and invest more into their oper-
ations.
(1)
2
In 2017, Republicans passed the most significant changes to the
tax code in decades. This legislation allowed small businesses to
save on tax bills and benefitted families of all income brackets.
Today, we will hear firsthand accounts of the many success stories
from this major update to our nation’s tax code for small busi-
nesses in a variety of industries.
As this law ages, some of the provisions are beginning to expire
or have their benefits reduced. It is imperative that we begin look-
ing at this law and find the provisions that helped main street the
most, such as lowering individual income tax rates that helped 70
percent of all small businesses that are organized as pass through
entities. There are many more successful provisions such as the
one that I hope we explore in greater depth here today.
This hearing will also highlight the stark tax policy differences
between the two major parties here in Washington, D.C. My demo-
cratic colleagues repeatedly use the phrase ‘‘make them pay their
fair share’’ while talking about the tax code. This simplified talking
point dumbs down the intricacies of some of the most consequential
policies that come out of Washington and ignores many of the unin-
tended costs of any tax increase that Congress makes. This dif-
ference can be seen by anyone willing to dig through President
Biden’s proposed budget. According to the Tax Foundation, if all
the changes were made there would be trillions in new taxes. GDP
would shrink by over 1 percent, and in the long term there would
be fewer jobs for all Americans.
One of the most harmful proposals is an additional 5 percent sur-
tax on small businesses that the White House claims is closing a
tax loophole. This could not be further from the truth and could be
devastating for small businesses. And I am going to submit this pe-
tition right here, led by the NFIB for the record, with the signa-
tures of over 11,000 small businesses that put together in a short
amount of time that calls the administration out for this disastrous
policy proposal.
Additionally included in the democratic misnamed Inflation Re-
duction Act there was an additional $80 billion in new funding to
the IRS. With these new funds, the agency is poised to be more ag-
gressively toward auditing America’s small business. And today I
hope we can dig deeper into what it means for small businesses
when we have an IRS working overtime to target American job cre-
ators.
Here on the Committee of Small Business, I promise we will be
working to create an environment where businesses can thrive and
grow. We are eager to find solutions that will help pave a path to-
wards success for both now and the future and it starts by enacting
pro-growth policies.
In addition to the NFIB letter, I would like to submit the fol-
lowing letters and testimony for the record.
A letter from the National Association of Manufacturers that
highlights how manufacturers hired more workers, increased
wages, and invested in their businesses following TCGA;
A letter signed by 597 small software businesses from the 50
states regarding immediate R&D expensing;
And testimony from the National Taxpayers Union highlighting
the TCGA Biden tax increases and the IRS.
3
I want to thank all of you again for being here with us today,
and I am looking forward to today’s conversation.
And with that I will yield to our distinguished Ranking Member
from New York, Ms. Velázquez, for her opening remarks.
Ms. VELÁZQUEZ. Thank you, Mr. Chairman, for holding this
hearing.
Main street businesses form the bedrock of our nation’s economy,
driving innovation and job creation, even during periods of eco-
nomic turmoil and uncertainty. Regrettably, despite the funda-
mental importance of small firms, recent tax reform has catered to
the interests of wealthy individuals and large corporations instead
of American entrepreneurs.
Small businesses require certainty and simplicity to compete.
However, our convoluted and onerous tax code creates an over-
whelming burden for these businesses. Small firms typically do not
have tax professionals on staff and must spend substantial funds
on outsourcing their tax preparation.
Unfortunately, the 2017 tax law did little to simplify the tax
code. Instead, it contributed to greater complexity and diminishing
returns for small firms. Even tax provisions aimed at helping small
firms, such as the pass-through deduction, ended up disproportion-
ately benefiting the wealthy.
While only 8 percent of those who took advantage of the 199A
pass-through deduction last year had income over $500,000, that 8
percent accumulated two-thirds of the $36.5 billion tax benefit.
This is particularly striking given the average income of a small
business owner is roughly $70,000 per year. The 2017 tax law sad-
dled entrepreneurs with more complexity and uncertainty by mak-
ing the small business provisions in the bill temporary while mak-
ing corporate tax cuts permanent.
The fact of the matter is that when it comes to cutting taxes,
here small businesses are an afterthought.
Over the past several years, evidence has emerged confirming
the warnings that the wealthy benefit disproportionately from this
law. Corporate profits have surged to record heights, as has cor-
porate tax avoidance, often at the expense of higher prices for
American households.
This abuse has led to a growing concentration of economic power,
fostering corporate monopolies that use their extensive market
share to crush the competitiveness of small firms.
From offshore tax shelters to local economic development incen-
tives, large corporations leverage these loopholes to undermine
small businesses.
That is why I was encouraged to see that IRS and Treasury have
pledged not to use additional enforcement funds, passed as part of
the Inflation Reduction Act, to increase audit rates of people that
make under $400,000 per year. Instead, they will focus their efforts
on high-income noncompliance, leveling the playing field for our
nation’s small employers.
Additionally, I applaud their commitment to using these funds to
help modernize their systems and to help businesses meet their ob-
ligations and access eligible tax incentives. This is a crucial step in
creating a fair and level competitive landscape for small firms.
4
Lastly, we should not ignore the budgetary consequences of the
2017 law, which has significantly contributed to soaring fiscal defi-
cits. We now find ourselves only weeks away from a potential de-
fault on the national debt, which threatens to plunge small busi-
nesses into uncertainty and potentially trigger a devastating eco-
nomic recession.
If Congress truly wants to help small firms, we must start work-
ing with them to simplify the tax code to bring real reforms that
make a meaningful impact to their ability to comply and operate.
It is my hope that today’s hearing will allow us to start a dialogue
to start the process of building a better tax framework for our
country’s small firms.
I thank the witnesses for testifying and providing their valuable
perspective.
Thank you, Mr. Chairman. I yield back.
Chairman WILLIAMS. Thank you, Ms. Velázquez.
And now we will introduce our witnesses.
And may I call you Lynn to begin with? Can you tell me how to
say your last name?
Ms. MUCENSKI KECK. Mucenski Keck.
Chairman WILLIAMS. Mucenski Keck?
Ms. MUCENSKI KECK. You got it.
Chairman WILLIAMS. Okay. The pleasure this afternoon to in-
troduce our first witness, Ms. Lynn Mucenski Keck. She has over
20 years of tax accounting experience and is currently the National
Lead of the Federal Tax Policy at Withum, an advisory accounting
firm. At Withum, she focuses on domestic tax planning for busi-
nesses, and in her previous job she worked on business implemen-
tation practices surrounding major pieces of congressional legisla-
tion, including the 2020 CARES Act and the 2017 Tax Cuts and
Jobs Act. She has received her bachelor of science degree in ac-
counting from St. John Fisher College and a master’s in taxation
from the University of Denver. Lynn is a CPA, licensed in New
York, and a Member of the American Institute of Certified Public
Accountants. Previously, she was an associate accounting professor
at St. John Fisher College. As a contributor for Forbes, Lynn writes
extensively on the impact that potential congressional legislation
would have on the business community.
I want to say thank you, Lynn, for joining the Committee today,
and I am looking forward to today’s important conversation. So
thank you very much.
I now want to recognize my colleague, Representative Ellzey to
briefly introduce the next witness who is appearing before us
today.
Mr. ELLZEY. Thank you, Mr. Chairman.
It is my honor to introduce the Committee’s next witness, my
good friend, Russell Boening.
Hi, Russell. I am down here on the end, the new guy.
Russell is a fourth-generation farmer and native of Texas. He is
a full-time farmer and rancher from Wilson County, and he and his
family grow feed grains, cotton, and wheat, have a beef cattle oper-
ation, and a dairy operation. That is no small task.
Russell is president of the Texas Farm Bureau, which probably
represents 535,000 Texas Members. Having been elected as presi-
5
dent of Texas Farm Bureau in 2014, Russell was first elected to the
Bureau’s Board of Directors in 2008 and then as secretary/treas-
urer in 2011. Previously, Russell was chosen as the Bureau’s Out-
standing Young Farmer—that was many years ago—and Rancher
in 1986. He has held every office in the Wilson County Farm Bu-
reau Board spanning across 30 years, and of course, it goes without
saying, but I will say it, he is an Aggie. I did not hear the whoop.
All right. After graduating from Texas A&M in 1981, Russell
jumped right into his family’s farm business, Boening Brothers
Dairy. His work centered on business management and marketing
for the dairy and beef production side of his family’s business. Rus-
sell’s extensive experience in family farming and lifelong service to
the Texas Farm Bureau makes him an expert witness in tax policy
and examining its impact it has on everyday small farms in Amer-
ica. Not just in Texas, but everywhere. He understands firsthand
the contribution farmers and ranchers make to this country in
feeding the world, in fact, and he has dedicated his life to being one
of those and to serving others.
Russell, thank you for joining the Committee this afternoon, and
I am looking forward to our conversation.
Mr. Chairman and Members, welcome Mr. Russell Boening.
Chairman WILLIAMS. I now recognize my colleague, Represent-
ative Meuser, to briefly introduce the next witness who is appear-
ing before us today.
Mr. MEUSER. Well, thank you very much, Mr. Chairman. It is
my honor to introduce my friend, Mr. Warren Hudak to the Com-
mittee. Mr. Hudak is president of Hudak & Company, small busi-
ness accounting firm based just outside of my district in Harris-
burg, Pennsylvania, where he specializes in tax, accounting, and
consulting advice. And he is also involved in a whole lot of leader-
ship on community projects. In addition to being a small business
owner himself, over 90 percent of Mr. Hudak’s clients are small
businesses as well. Mr. Hudak founded his business after serving
in the U.S. Navy and gaining over 20 years of accounting and busi-
ness consulting experience. He is also a Penn State graduate and
holds a bachelor of science degree in accounting. As well as being
president of his small business and having served in the Navy, Mr.
Hudak has also served his local community as stated in various
ways. He has held roles as Chairman of the board and president
of the Harrisburg Junior Chamber of Commerce, the Penn State
Urban Youth Development Committee, as a Member of the Penn-
sylvania Chamber of Commerce, and various roles within the NFIB
and others. With his vast experience, Mr. Hudak understands first-
hand and can speak to how small businesses are impacted by high-
er costs, whether it be through higher taxes or through an increase
in regulatory compliance costs. I thank Mr. Hudak and all of our
witnesses for joining us here this afternoon.
I yield back, Mr. Chairman.
Chairman WILLIAMS. I now recognize my colleague, Ranking
Member Velázquez, to briefly introduce the next witness who is ap-
pearing before us today.
Ms. VELÁZQUEZ. Thank you, Mr. Chairman.
Our final witness is Ms. Anne Zimmerman, Founder and Owner
of Zimmerman & Co. CPAs, a public accounting firm with offices
6
in Cleveland and Cincinnati. Since the mid-1980s, she has provided
financial and tax services to small businesses and individuals and
acts as the offsite CFO for many businesses. Since 2017, Ms. Zim-
merman has served as Co-Chair for Small Businesses for America’s
Future, a nonprofit focused on ensuring that policymakers
prioritize main street by advancing a just and equitable economic
framework that works for small business owners, their employees,
and their community.
Thank you, Ms. Zimmerman. We look forward to hearing your
testimony.
Chairman WILLIAMS. And I would like to say for all of us, we
appreciate again all of you being here today.
I now recognize Ms. Mucenski Keck, Lynn, for your 5 minute
opening remarks.
STATEMENTS OF LYNN MUCENSKI KECK, PRINCIPAL AND NA-
TIONAL LEAD, FEDERAL TAX POLICY, WITHUM; RUSSELL
BOENING, PRESIDENT, TEXAS FARM BUREAU; WARREN
HUDAK, PRESIDENT, HUDAK AND COMPANY; ANNE ZIMMER-
MAN, FOUNDER AND OWNER, CO-CHAIR OF SMALL BUSI-
NESS FOR AMERICA’S FUTURE, ZIMMERMAN AND CO. CPAS,
INC.
STATEMENT OF LYNN MUCENSKI KECK
Ms. MUCENSKI KECK. Chairman Williams, Ranking Member
Velázquez, and other Members of the Committee, thank you for the
opportunity to testify today.
My name is Lynn Mucenski Keck, and I help lead the federal tax
policy practice for Withum, a top 25 national accounting firm with
over 2,200 team members. I have been a tax accountant for over
20 years.
Part of my responsibilities include monitoring and disseminating
information to clients regarding current and pending federal tax
legislation. I appreciate the opportunity to offer my insights as to
how existing and proposed tax policies are impacting privately
owned businesses.
Many business owners today are feeling overwhelmed. They are
still recovering from the pandemic. They are now facing higher
supply costs and growing labor shortage, as well as rising interest
rates. Changes included in the Tax Cuts and Jobs Act that did not
take effect until the 2022 and 2023 taxable year are making things
worse. These changes, including the tightening of the interest ex-
pense limitation and the required capitalization of R&E costs have
confused my clients. Their business operations are the same, yet
their taxable income under these new policies are skyrocketing.
Even when a business’s debt structure undergoes no significant
changes, its owners are surprised to learn that they are not al-
lowed to deduct the full amount of their interest expense. That is
because starting with the 2022 tax year, the 30 percent limitation
now applies after deducting depreciation and amortization. This
change forces businesses to disallow even more interest expense
than ever. And with the rising interest rates the impact is even
worse.
7
Meanwhile, businesses making R&E investments are baffled by
new rules that allow for only 10 percent of R&E expenses incurred
in the 2022 year to be deducted with the remaining costs being
spread over 5 years if it is domestic research, or 15 years if it is
research performed overseas.
This policy is in direct contradiction to the treatment of R&E ex-
penses in other developed countries. For example, United Kingdom
and China allow a 230 percent and 175 percent super deduction,
respectively.
As reflected in my written testimony, these changes have dras-
tically increased taxable income of businesses. The example shows
the same operations of a pass-through business owner in 2021
versus 2023, reflected an increase in taxable income over 47 per-
cent and increases federal tax due of 70 percent.
The common reaction from business owners facing these tax
hikes is frustration accompanied by dread on how they will find the
additional funding to pay their tax bills.
To fix this, I strongly encourage Congress to revert to the 2021
Interest Expense Tax Limitation calculation and Congress should
also act to restore the immediate expensing of R&E expenditures
and allow the U.S. to remain the world leader in innovation and
technology.
My clients are confronting these tax increases right now but they
are also fearful of proposed tax legislations being considered by
Congress. One of the most prominent concerns regards the pass-
through deduction. The critical deduction is scheduled to sunset at
the end of the 2025 taxable year. Recent proposals would limit the
business owners to making less than $400,000 to receive the deduc-
tion or just eliminate the deduction all together.
It is important to remember why the pass-through deduction ex-
ists. It was enacted as part of the TCJA to provide parity between
pass-through entity owners, those who make up the majority of
small businesses, and C corporations. With the C corporation tax
rate dramatically decreasing from 25 to 21 percent, pass-through
owners needed relief to remain a viable option for business owners.
This parity was accomplished through the 20 percent pass-through
deduction. The deduction allows some taxpayers of pass-through
businesses to decrease their tax rate from 37 percent to 30 percent.
Not all pass-through owners receive the 20 percent deduction, and
the application of a pass-through deduction is far more complicated
than the simple tax rate deduction C corporations receive.
Absent the pass-through deduction, however, the effective tax
rate on small business owners will increase as much as 7 percent-
age points. For small business owners who must immediately pay
tax on their earnings even if they receive no cash distributions
from the company, a 7 percentage point increase is severe. It is im-
perative that the pass-through deduction remains. Instead of
threatening to eliminate pass-through deductions, Congress should
make it permanent just like the C corporation rate.
With all these changes and looming proposals, I fear we are
reaching a tipping point where the government is no longer
incentivizing small businesses to assist in growing the U.S. econ-
omy, but is instead limiting the operations or forcing them to shut
down all together.
8
Restoring R&E expensing, increasing the interest deduction cap,
and making permanent pass-through deduction would reverse this
trend and help these businesses invest and create jobs in the
United States.
I appreciate the Chairman and the Committee for considering
the impact of tax legislation on small business and I would be
happy to take any questions.
Chairman WILLIAMS. Thank you very much.
And now I recognize Mr. Boening for his 5 minute opening re-
marks.
STATEMENT OF RUSSELL BOENING
Mr. BOENING. Chairman Williams, Ranking Member
Velázquez, and Members of the Committee, as stated in my intro-
duction, we do farm and ranch around southeast of San Antonio,
and I really appreciate the opportunity to be here today on this im-
portant topic.
Farmers and ranchers across our state and across this country
continue navigating challenges that we all face—high input prices,
inflation, weather, volatile commodity prices, among other things.
When adjusted for inflation, 2023 net farm income is expected to
decrease by $30.5 billion, or 18.2 percent, from 2022. The average
age of the American farmer and rancher is 60 years old with more
than a third being at retirement age. It is estimated that more
than 370 million acres, or 40 percent of all farmland, will trade
hands over the next 15 years. The men and women that work hard
to provide the food and fiber of this country and want to pass their
operations on to the next generation. Any additional tax burden on
them would put our national food security at risk, increase consoli-
dation in our industry, and quite frankly, make America more reli-
ant on foreign countries.
President Biden’s budget puts farmers, ranchers, and small busi-
nesses squarely in the crosshairs. For instance, the president’s
budget calls for the elimination of stepped-up basis and doubling
the rate that capital gains are taxed. These changes combined with
the proposed revisions to the death tax law would result in $280
billion in tax increases over the next decade.
I am a fourth-generation farmer who has been fortunate enough
to hold on to our family property. We have navigated challenges
over the years. My family, and those before us, have worked hard
to continue operating. Taking away stepped-up basis would dev-
astate my family and many other farmers and ranchers across the
country. Stepped-up basis has helped us pass our land from one
generation to the next because as we well know, it values the farm
at the time of inheritance. If this tool is eliminated, and I pass
away, my children would be forced to pay taxes on appreciation
from the previous generation.
Taking our state for an example, population pressure has driven
up land values very high, yet left farmers and ranchers no more
liquid than they historically have been. To put a finer point on the
pressure of that land out of production, since 2014, 4 million acres
have left ag production in the state of Texas, a reduction of 3 per-
cent. Nationally, in those 8 years, nearly 20 million acres have
been taken out of production.
9
The tax increases in the president’s budget proposal would leave
our children with a tax bill that will likely leave them no choice
but to sell the property or at least part of it. To make matters
worse, this additional tax burden would come on top of paying the
death tax. Of course, this assumes there will still be an estate left
to tax after paying capital gains on the assets of the estate. That
means upon my death, after paying staggering capital gains taxes,
the federal government would claim up to 40 percent of the taxable
estate from my children. We feel this is a cruel way to generate tax
revenue to pay for the president’s budget proposals.
Many people think that the death tax only affects the wealthy.
That is ill advised. We all know that farming and ranching is a
land-rich, cash-poor business model. A farmer or rancher might be
worth several million dollars, but a vast majority is in land and
farming equipment, with only a fraction being money in the bank.
Thanks to the 2017 Tax Cuts and Jobs Act, the estate tax exemp-
tion was doubled from $11 million per couple to $22 million, which
helped prevent most family farms from paying the tax. The presi-
dent’s budget would cut that exemption rate back to $11 million
per couple, saddling American farm and ranch families with a dev-
astating tax burden, often forcing them to sell their property. The
lower the exemption level, the more ag land you put at risk of
being sold off to the highest bidder.
To put it simply, death should not be a taxable event. Texas
Farm Bureau advocates for abolishing the estate tax, or at a min-
imum, ensuring the current exemption rate set forth by the Tax
Cuts and Jobs Act does not expire.
There are other important provisions in the Tax Cuts and Jobs
Act. This includes reduced pass-through tax rates, expanded brack-
ets, and the Section 199A 20 percent business income deduction.
We feel like those should be extended.
We call on Congress and the administration to work together
across the aisle to make these provisions permanent and combat
these tax increases. Family farms and ranches are the building
block for a secure America. We must fight for a tax code that pro-
vides for their future, not one that puts them in jeopardy.
Thank you again for the opportunity to be here.
Chairman WILLIAMS. Thank you very much.
And now I recognize Mr. Hudak for his 5 minute opening re-
marks.
STATEMENT OF WARREN HUDAK
Mr. HUDAK. Good afternoon, Members of the House Small Busi-
ness Committee. Thank you for inviting me to testify on Tax Day
as an accountant.
My name is Warren Hudak. I am president of Hudak and Com-
pany, an accounting and payroll firm in Camp Hill, Pennsylvania.
We have 11 employees and 90 percent of our customers are small
business owners. We provide full resources small businesses would
expect from a large accounting firm, while maintaining a personal
touch.
Our job is to work with small business clients to translate the
complicated Federal tax code and frequently changing tax provi-
sions. This challenge comes on top of other economic problems that
10
small businesses are facing, which include high inflation and per-
vasive workforce shortages, the inability to get competent labor. We
also face these challenges as our labor costs are up 40 percent, our
software costs have tripled since the pandemic began.
Small businesses face an uncertain future that makes business
planning extremely difficult. Beginning this year, certain business
provisions of the Tax Cuts and Jobs Act of 2017 expire or wind
down. In fewer than 3 years, the vast majority of the provisions
that benefit individuals and small businesses will also expire. If
Congress fails to act, there will be a detrimental tax increase on
millions of small businesses.
Further, proposals to increase taxes on businesses cloud opti-
mism and also complicate business planning. Finally, small busi-
ness paperwork burden is increasing while the IRS disproportion-
ately expands enforcement efforts over customer improvements.
Small businesses received significant tax savings upon enact-
ment of the 2017 tax law. For the more than three-quarters of our
businesses organized as pass-throughs, the 20 percent business de-
duction, also known as Section 199A, combined with the lower indi-
vidual tax rates and broader income tax brackets, provided tax re-
lief that was invested in businesses and employees. All these provi-
sions expire at the end of 2025.
In 2017, the tax law also contained provisions that encouraged
business investment by allowing for immediate deduction of equip-
ment and R&D costs. Two of these provisions expire and wind
down this year. R&D expensing is a big deal when cashflow is
tight, which is currently happening due to inflation and rising in-
terest rates.
The sooner that these beneficial deductions or rates are ex-
tended, the better small businesses will be able to plan. Further
clouding business planning are the proposed tax increases. Presi-
dent Biden’s budget request would increase taxes on small busi-
nesses organized as corporations and pass-throughs. While small
businesses may not be impacted by those proposed tax changes
every year, they will impact when they have profitable years or
when they sell their business to fund their retirement or when they
pass along their business to the next generation.
The budget request describes certain tax increases misleading,
like closing loopholes. One example of this mischaracterization is a
proposal to expand the 3.8 percent ‘‘Net Investment Income Tax’’
(NIIT) to active business and increase the tax rate to 5 percent. It
would deliberate policy choice to exempt active business income
from the tax. As former President Obama’s economic advisor Jason
Furman described, it was not applied to active business income,
‘‘because it could be demonized as a tax on small businesses and
doctors.’’ Nothing has changed.
A deliberate policy choice is not a loophole. The proposed expan-
sion of the tax would more than double the revenue collected, fur-
ther demonstrating that the tax increase proposal is not closing a
loophole. If it is enacted, this substantial tax increase would reduce
the ability of pass-through businesses to invest in their businesses
and employees and leave them further disadvantaged relative to
larger corporations.
11
The Inflation Reduction Act provided nearly $80 billion in new
funding for the IRS, primarily focused on enforcement. Unfortu-
nately, only 4 percent of that funding was designated for customer
service, which is in need of significant improvement.
Small business owners are concerned about increased enforce-
ment efforts. The continued backlog of tax returns, the combination
of increased paperwork and data privacy, there have been many
improvements in reducing the IRS’s historic processing backlog but
it remains considerable. Paperwork burdens are expanding as
Form 100K and beneficial ownership reporting begin next year.
Outreach and education efforts on these new requirements are
lacking. Nobody knows about these.
I also remain concerned about the ability of the IRS to protect
personal information, and I worry about prepopulating returns
could exacerbate privacy risks. I encourage continued oversight of
this IRS expansion and the potential impacts of small business.
Congress can help mitigate economic challenges by expanding
beneficial small tax proposals, reducing red tape, rejecting tax in-
creases on small businesses. Certainly will help businesses plan
and increase small business optimism.
Thank you for the opportunity to be here today.
Chairman WILLIAMS. Thank you.
And now I recognize Ms. Zimmerman for her 5 minute opening
remarks.
STATEMENT OF ANNE ZIMMERMAN
Ms. ZIMMERMAN. Good afternoon, Chairman Williams, Rank-
ing Member Velázquez, and Members of the Committee. Thank you
for the opportunity to speak to you today.
My name is Anne Zimmerman, and I am a CPA and president
and founder of Zimmerman and Co. CPAs, with offices in Cin-
cinnati and Cleveland, Ohio. I am also the Co-Chair of Small Busi-
ness for America’s Future, a national coalition of small business
owners and leaders working to give the small business community
a voice at every level of the government.
As a small business owner myself, I take great pleasure in sup-
porting other small businesses. Every Friday, my grandson AJ and
I have a special tradition of treating ourselves to creamy whips on
our way home from school. For those of you not from Ohio, creamy
whips are soft serve ice cream.
We will not be able to enjoy that fun ritual this week because
that small business we have grown fond of closed on Sunday.
While unfortunate, this is not uncommon. This experience high-
lights the vulnerability of small businesses during their early
years. With a record 10.2 million new small businesses since 2021,
establishing a fair tax code is crucial for their success and for the
country to capitalize on the potential economic activity that this
boom in entrepreneurship could deliver.
The Tax Cuts and Jobs Act (TCJA) has primarily benefitted large
corporations, offering them a permanent 40 percent cut in their
rate, while small businesses received a temporary 20 percent de-
duction instead. Extending the current small business deduction
beyond 2025 would permanently enshrine these tax inequities,
maintaining an unfair advantage for large corporations.
12
A public opinion poll conducted for Small Business for America’s
Future by Morning Consult in 2019 found that changes in the tax
code from the TCJA did not significantly help small businesses
grow or invest. Almost half of small businesses said the new tax
law had no impact on their growth or profitability, while 24 percent
said it had a negative impact. Only 19 percent of owners said the
law had a positive impact on their business.
I have a few ideas about how the tax code can foster small busi-
ness success.
First, create a tax credit for hiring the first employee which
would surely foster job growth.
Second, make the first $25,000 in business profits tax free to
strengthen truly small businesses.
Next, let’s rebalance the TCJA cuts, reversing a small portion of
big businesses’ 40 percent cuts to pay for improved permanent cuts
for small business.
Next, let’s simplify tax compliance and improve IRS customer
service, including bringing back support for tax code technical help
for small business owners.
Implement a minimum tax on corporate book income which
would not impact most small businesses but would certainly level
the playing field.
Moreover, it is crucial to avoid destabilizing political fights, such
as using the debt ceiling as leverage. Such tactics disproportion-
ately affect small businesses and impede their ability to thrive, cre-
ate jobs, and drive innovation.
In conclusion, I urge Congress to create a more equitable tax sys-
tem that genuinely supports small businesses and fosters a stable
economic environment, rather than merely extending the TCJA.
Ensuring the well-being of small businesses is essential to this en-
deavor, and essential to making sure creamy whip stores, like the
one AJ and I loved, can keep serving up smiles in communities
across the country.
Thank you so much for your time and consideration.
Chairman WILLIAMS. Thank you.
We will now move to the Member questions, and I recognize my-
self for 5 minutes.
I want to talk about the death tax because it is something that
directly affected me when my father passed away in 1990. He left
me with a bunch of assets but no cash. Shortly after his passing,
the IRS was reaching out to collect the estate tax which was 55
percent at the time. The tax bill was so high I considered selling
our successful family business in order to cover the expense. In-
stead, I hired an accountant to see what my options were and we
made an agreement with the IRS to cover the tax liability over
time. And after over a decade, right before the start of 2001, I
made the last tax payment from his passing. Imagine what we
could have done if we were able to invest that money back into our
business for 10 years. We could have hired more people. We could
have updated facilities. We could have donated more to schools and
churches, but instead it went to the federal government for a def-
icit.
So my story is not unique. This tax affects so many Americans
across the country. We have heard that already today. And success
13
should be rewarded so people can build wealth for their families to
pass along to future generations rather than be hit with this dupli-
cative tax bill that sends a significant portion back to the federal
government.
So Mr. Boening, my question, can you discuss the implications
that the death has for the many farmers and ranchers who are
Members of the Texas Farm Bureau?
Mr. BOENING. Thank you, Chairman Williams, for that ques-
tion.
Yes, I think I can. While the testimony was going on and the
death taxes was one that was mentioned several times, you know,
I mentioned the way things have grown in Texas and we have seen
it, you have seen it in your area, and there are farms and ranches
that are operating in areas that are of high growth. And it does not
take long for—and I am just using examples that I am familiar
with—it does not take long for land to get to $10,000 an acre,
$12,000, $15,000 an acre. We are talking about ag land and farm-
ers and ranchers that are farming it. So, you know, it is pretty
easy math. A 2,000 acre farm all of a sudden is worth $20 million.
And that sounds like a lot of money, and it is a lot of money if you
want to sell it, but farmers and ranchers do not necessarily want
to sell it.
Chairman WILLIAMS. A lot of people do not understand if you
have an asset it is frozen. It is not liquid. That is the problem.
Mr. BOENING. And so the death tax is just, you know, and the
way I look at it as well, those are assets that you have already paid
tax on. So, it would be devasting to farmers and ranchers.
Chairman WILLIAMS. Thank you. Thank you.
One component of the Tax Cuts and Jobs Act that I want to
highlight was the full and immediate expensing provision. For
those that do not know, this allowed businesses to write off the full
cost of equipment at the time it is purchased rather than through-
out the life cycle of the asset. This helps the small business owner
in a variety of ways. It helps suppliers because it makes businesses
more likely to invest in heavy equipment which in turn helps pro-
vide customers the best products and services from the best equip-
ment. It also helps workers do their jobs effectively and efficiently.
So briefly, Ms. Mucenski Keck, can you talk about what the pri-
vate sector’s reaction has been to this provision? And can you dis-
cuss what you expect to happen if this provision continues to de-
crease every year until it eventually is down to zero?
Ms. MUCENSKI KECK. Thank you for the question.
I think it is a very important part of how small businesses learn
to operate. And the fact that oftentimes they may not be able to
afford that piece of equipment for their property or for their busi-
ness, but because of the 100 percent expensing they can indeed use
that offset for cash purposes to help them get to the cash needed
to purchase the actual equipment, which as pointed out would help
them operate their business more successfully and employ more
people.
With the increasing reduction of the bonus depreciation of how
we refer to it in the tax world, you are going to essentially cause
a lot more businesses to second guess buying additional equipment
and expanding their businesses because they just do not have the
14
cash payment to go out and buy the piece of machinery that they
need.
Chairman WILLIAMS. Thank you for that.
Quickly, one of the most well-known components of the tax bill
was the cutting of individual income tax rates. We have talked
about that already today. This helps small businesses that were or-
ganized as pass-through entities and allowed customers to keep
more of their hard-earned money. Consumer spending drives
growth and this provision delivered.
So quickly, Mr. Hudak, can you discuss how your business bene-
fitted from the tax cuts and what you saw some of your customers
do with their increase in savings? You have got about 34 seconds.
Mr. HUDAK. All of our customers and us invest in property and
equipment. It was a game changer for us. The lower rates enabled
us the cashflow necessary to grow and increase our business.
I would like to make one comment on your previous question. We
had a shop provider say I can afford the $400,000 piece of equip-
ment but I cannot afford the $80,000 tax bill.
Chairman WILLIAMS. Thank you very much.
And with that now I recognize the Ranking Member for 5 min-
utes of questions.
Ms. VELÁZQUEZ. Thank you, Mr. Chairman.
Ms. Mucenski Keck, thank you for your testimony and pointing
out the upcoming tax hikes built into the 2017 tax law. Just to
clarify, I was wondering which political party drafted the tax codes
and Jobs Act? When Republicans wrote this act, they did it without
hearings and they built in a lot of these tax hikes that you are dis-
cussing today, like the expiration of the individual rate cuts, the
deduction for pass-through entities, and the phase out of bonus de-
preciation and 179 expensing.
Can you tell me, Ms. Mucenski Keck, why they have to build in
these cliffs and sunsets?
Ms. MUCENSKI KECK. Sure. I believe that both parties have
used the Budget Reconciliation Act to pass tax law, and unfortu-
nately, it is the people like us on the other side of the aisle that
are faced to deal with the expiring provisions. So within the budget
reconciliation, we know that they cannot pass the law with the ma-
jority needed within Congress so they have to go through a budget
reconciliation process. That process requires that no additional def-
icit be added after a 10-year period, and so we have these sunset
provisions. And we have seen both parties, both Democrat and Re-
publican parties use the budget reconciliation process to pass tax
law.
Ms. VELÁZQUEZ. The fact of the matter is that people are talk-
ing about how these provisions that are going to expire are impact-
ing small businesses where those provisions were included in the
bill by the Republicans. They were the ones who passed this bill.
To pass this law on a party line vote they have to build tax
hikes, which primarily impact small businesses while the provi-
sions that benefitted the big corporations and the wealthiest, they
were made permanent. That was a choice that was made by the
Republicans. As a result, the original tax law gave massive tax cuts
to the largest corporations.
15
Can you tell me how this impacts the ability of small businesses
to compete?
Ms. MUCENSKI KECK. I think, I just want to make sure I am
understanding the question. I think the Tax Cuts and Jobs Act was
a good bill for small business. I think 199A, I think the reduction
in the tax cuts I think it was absolutely well received and still
wanted for business. I cannot comment on how legislation can be
bipartisan to make those complete I think is the question.
Ms. VELÁZQUEZ. Well, the issue here is that a choice was made
to make provisions that benefited the large corporations and the
wealthiest permanent while they sunsetted provisions impacting
small businesses. The benefits for small businesses are coming to
an end in 2025.
Ms. MUCENSKI KECK. But I do think there are provisions in
there that do affect large businesses, so the interest expense limita-
tion is a huge limitation that is also going to impact large C cor-
porations, and we also had a fair amount of international tax legis-
lation that was changed, as you know. That is also impacting large
C corporations.
Ms. VELÁZQUEZ. Small businesses that by the way, when it
comes to doing business overseas, when it comes to trade, they only
have one client. So those types of changes did not impact the
70,000 small businesses in our communities.
Ms. Zimmerman, small businesses need certainty to compete in
the marketplace. While corporate rates were made permanent by
the 2017 law, the individual rates and pass-through cuts expire in
2025. Does this uncertainty affect the behavior of small businesses?
Ms. ZIMMERMAN. Thank you for the question. Absolutely. The
uncertainty of not knowing what things will look like causes prob-
lems when you are hiring, planning, innovating. The uncertainty,
when you talk about uncertainty, also you have to look at the issue
now with the debt ceiling. There is nothing that is causing us, me,
more uncertainty with my business than wondering whether we
are going to default on our debt. And we need to resolve that as
soon as possible just to let the economic climate settle down.
Ms. VELÁZQUEZ. How does underfunding the IRS hurt small
firms?
Ms. ZIMMERMAN. Well, small business owners try to be compli-
ant. And they need that support. It is a disproportionate amount
of audits and all for the small taxpayer because it is too expensive
and not enough personnel and training for the large taxpayers. The
funding for the IRS will increase customer service and educate
small business. Even maybe set up a small business hotline.
Ms. VELÁZQUEZ. My time has expired. Thank you so much.
Ms. ZIMMERMAN. Thank you.
Chairman WILLIAMS. Thank you, Ms. Velázquez.
And now I recognize Congressman Luetkemeyer from the Great
State of Missouri for 5 minutes.
Mr. LUETKEMEYER. Thank you, Mr. Chairman.
Ms. Mucenski Keck, you know, you are an accountant and you
followed a lot of folks, I am sure, when the Tax Cuts and Jobs Act
was passed. What did the people do with those dollars? Did they
take them and go to the bar and blow them? Did they go on vaca-
16
tion? Did they go buy some fancy clothes? What did they do with
those dollars, the small businesses?
Ms. MUCENSKI KECK. So the first thing I would say is a 10-
year window, believe it or not, is significant for taxes. So knowing
that small businesses—not we, but small businesses would have
the availability to have that for a 10-year period was significant.
And there was planning. There was planning in how they were
going to potentially transition to family Members because often-
times they are family-owned businesses. There was planning
though more importantly of how to expand, how to build, how to
reinvest. And those dollars allowed them to do that. And I think
that that is the parity we are talking about when we talk about
the difference between pass-through small businesses and C cor-
porations.
Mr. LUETKEMEYER. Mr. Hudak, how about your customers,
your clients? What did they do with those dollars that they got to
save that they did not remember the tax dollars are actually their
dollars. It is not the government’s dollars. It is their dollars they
got to keep. The small businesses got to keep them. The individuals
got to keep them. What did your clients do with those dollars?
Mr. HUDAK. No small business owner wakes up in the morning
wanting to be a tiny guy; right? They all have dreams, big dreams,
and they want to get to the next rung on the ladder. And that is
what they used the money for, dream bigger than ever before.
Mr. LUETKEMEYER. Did they use it to hire more people, ex-
pand their business, go out and buy another piece of property?
Mr. HUDAK. Absolutely. Plant, property and equipment.
Mr. LUETKEMEYER. Buy new equipment, whatever?
Mr. HUDAK. Absolutely. Plant, property, and equipment, 100
percent.
Mr. LUETKEMEYER. They reinvested it. They did not go blow
it on stuff?
Mr. HUDAK. Not a single one.
Mr. LUETKEMEYER. Thank you.
Mr. Boening, when you got your tax cut, what did you do with
your dollars? I will guarantee you as a farmer you did not go out
and buy you a brand new pickup truck and put a whole bunch of
stuff on the outside of it.
Mr. BOENING. Well, to be honest, we might have bought a new
tractor.
Mr. LUETKEMEYER. New tractor, yes.
Mr. BOENING. If you needed a new tractor.
Mr. LUETKEMEYER. That is a piece of equipment you need.
Mr. BOENING. But the second thing, it has been alluded to, you
know, we invested in equipment. You know, and if you can possibly
add some land or something, if you can hire another person or two,
labor is always a tough situation so that is not always possible. But
yeah, we invested back in the business.
Mr. LUETKEMEYER. So the point being that these tax dollars
that were left in the people’s pockets, they were left in the small
business pockets, were reinvested. And allowed our economy to
grow at a record pace. If everybody can recall, just 2 or 3 years ago,
the government has record revenues coming in, and still today has
record revenues coming in I would argue as a result of the Tax
17
Cuts and Jobs Act. We had record across the board wage growth
for every single demographic in this country. Across the board ev-
erybody got a nice wage bump. A real growth as a result of min-
imum inflation and increased actual real growth in your wages.
It is nice to see that we had some folks that actually used those
dollars wisely. The American people, I think you can trust them
with their own money. Remember, it is their money by the way.
Ms. Mucenski Keck, you had a comment a while ago with re-
gards to an R&D deduction. I would like to go a little bit farther
on that if you would not mind talking about that just a little bit
more because that is really important. Small businesses are where
a lot of innovation is, and the Chairman has worked hard on this
issue to make sure the dollars are there for the SBA to help sup-
port small businesses get started. Can you help us with that? Ex-
plain how important it is to small business with this R&D deduc-
tion.
Ms. MUCENSKI KECK. So for those who might be unfamiliar,
the R&E originally, if you invested in research technology or ex-
penditures you were immediately take them as a deduction when
calculating taxable income. Under the new law, or the revised law,
if you are conducting that research in the U.S., it has to be spread
over 5 years. If you are conducting that research in foreign lands,
over 15. Personally, we have had companies say they think they
are going to have to go out of business because they cannot afford
their tax bill. It is immensely difficult and challenging. I cannot tell
you on average how many calls I take a day where this has become
an issue where they are frustrated, cannot believe that it is hap-
pening, that we would put ourselves, the United States, behind
other economically developed countries in placing R&E solo. But
also, and the fact that they are not positive they are going to have
enough taxes to pay their tax bill and they might literally have to
shut down the doors.
Mr. LUETKEMEYER. Okay. Thank you.
I just have a couple seconds left. Let me just make a final com-
ment here.
What you are saying is that when you raise taxes, to the extent
that the individual or small business cannot even pay it, it will
force them out of business. And then what happens? You have con-
solidation. It makes the big guys bigger and all the little guys go
home. And this is exactly what we do not want to have in this
country.
With that, Mr. Chairman, I yield back.
Chairman WILLIAMS. Thank you.
I now recognize Ms. Gluesenkamp Perez for 5 minutes, from
Washington. From Washington State.
Ms. GLUESENKAMP PEREZ. Thank you, Mr. Chairman.
Ms. Zimmerman, I am very pro corporation. I have owned two of
them, an auto repair and a machine shop. And like many small
business owners with eight employees, I worked hard every year to
figure out how much taxes I paid and how to do it the right way.
I think we can all agree that our tax policies should be based in
fairness. Small businesses and working people have something to
contribute. They work hard to pay their fair share. Corporations
and the wealthy should also pay their fair share. But what we see
18
is a system that rewards certain kinds of work over other kinds of
work. Small business owners are out here busting our knuckles
making things, getting things from A to B, and making payroll.
Yet, the wealthy earn their income in ways that are taxed dif-
ferently and often more favorably than the backbreaking work done
by small businesses. This is unfair and it is demoralizing frankly
to small business owners who are playing by the rules and doing
everything right.
What reforms should Congress consider to level the playing field
for small businesses and ensure the wealthy pay their fair share?
Ms. ZIMMERMAN. In my oral testimony I did suggest a few and
I can tell you part of this is because of the different size of small
business. The SBA recognizes a small business as less than 500
employees. We represent and work with small businesses who
have, like you have, eight. I have 10. Maybe up to 50. A few of
them are 100 if they are manufacturing. And they are not getting
rich off these tax codes. They are not, we are not able to save
enough to even reinvest. Why did I, a small business owner, get
half the tax cut of the large corporations in 2017? And if you just
renew that as is, you are just making prominent that inequity. It
makes absolutely no sense to me why I got half. So that is why
things like a credit for the first employee hired or the first $25,000
tax free. A minimum tax on book income. Make it low but make
it fair so small business can survive. True small business.
Ms. GLUESENKAMP PEREZ. Are there any other key provi-
sions you think should be prioritized in tax reform to better sup-
port small businesses and help them grow? Particularly the many
millions of new businesses that started during the pandemic?
Ms. ZIMMERMAN. Well, when you look at the 10 million that
have started since the beginning of the pandemic, they did not
start with 500 employees relying on R&D credits to survive. They
are mom and pop shops starting up and that sort of thing. I think
funding the IRS. It is so unfunded. Their technology is behind the
private sector continually. Not to date myself, but we used to be
able to call the IRS and talk about tax law and discuss how we are
handling something. You cannot do that anymore. All you can do
is say did I pay my tax? Did my client pay my tax? What about
a small business hotline? Small business owners want to be compli-
ant. Help them.
Ms. GLUESENKAMP PEREZ. Thank you so much.
Mr. Chairman, I yield back.
Chairman WILLIAMS. I now recognize Mr. Meuser from the
Great State of Pennsylvania for 5 minutes.
Mr. MEUSER. Well, I thank you very much, Mr. Chairman.
Again, thank you to our witnesses. Very important hearing we are
having here today.
I spent a fair amount of time, over 20 years, helping grow a
small business into a larger business, and all of my customers were
businesses, much like my friend Warren, just dealing with and
working with small businesses for most of my adult life.
Small businesses, and all of you deal with a lot; right? Not just
taxes. I mean, you deal with workforce shortages. You deal with
the creditworthiness of your customers. You deal with training and
skill development, hiring, insurance, cost of goods, purchasing,
19
payables, inventory needs, cash flow, dealing with the banks, ac-
cess to capital, new higher interest rates. The list goes on. Today,
we are here talking the effect of small businesses. And it seems
that the TCGA, the Tax Cuts and Jobs Act is coming up quite a
bit.
So I work with a lot of chambers all the time and certainly being
on this Committee and within my district. And I have not had one
small business tell me that, boy, that Tax Cuts and Jobs Act was
somehow burdening me in some way. You know, lowering my
taxes. So I want to get into this, and also, I have not had anyone
tell me that the IRS increase was adding, doubling the size of the
IRS was something in their interest. I am also the former revenue
secretary for the Commonwealth of Pennsylvania and that was not
the answer to increase, not at all to increase revenues. The answer
is driving tax compliance, and definitely processing and systems
which we did. Not 87,000 new IRS agents.
Mr. Hudak, do you think all these new IRS agents is going to be
something that is somehow help your business?
Mr. HUDAK. Well, to be clear, just a few years ago I testified
in this very Committee on increasing funding for the IRS. They de-
stroyed 13 million information tax returns. When the inspector
general said where did they go? They said we were shorthanded.
We knew we would never get to them. When my client put in an
installment agreement directly with the IRS and they put it to-
gether improperly, poor training. There are a lot of great people at
the IRS. Congress has asked them to do too much. The tax code
is for collecting taxes. The more we dilute their ability to do that
function the more problems we are going to have. It is compliance.
We need simplicity of certainty. Not more rules. Not more laws.
And to be clear, I testified on the House Ways and Means Com-
mittee right after the 2008 crisis and we were trying to repatriate
trillions of dollars. That did not happen until we reduced corporate
rates.
Mr. MEUSER. Exactly.
Mr. HUDAK. And it deployed trillions of dollars into our econ-
omy with the efficiency of the private sector. We need more of that
kind of policy.
Mr. MEUSER. Well said. And also more management. Fifty-two
percent of the IRS agents have yet to show up for work. They con-
tinue to work remotely, which certainly does not help all the back-
logs that exist.
And also, just onto the C corps that we are referring to here, how
they got a better share of the taxes, you obviously, small businesses
very often sell to larger corporations and the fact that they have
been repatriated and they are domesticated more so than before, a
21 percent rate only allowed us to be competitive on a worldwide
scale where Ireland, where the president just got back from and
touted how wonderful their economy is doing, has a 12 percent cor-
porate tax rate.
But anyway, because there is reality and then there is the fic-
tional side of things. So let’s just get back to what is important to
you all. That is what we are here for. We have depreciation that
is currently being sunsetted and being phased out. We have the
small business tax cut. We have the R&D tax credit that has now
20
been phased out for this year. That has been extended, by the way,
for 2023 is my understanding. What portion of taxes do you need
us to pass in a bipartisan way, because that is the only way you
get things done. Okay, so the Tax Cuts and Jobs Act does not in-
crease taxes it has been alluded to, so we must keep those small
business taxes. Which ones, Ms. Keck, would you like us to see?
Ms. MUCENSKI KECK. I would like to see the pass-through de-
duction for small business owners be kept. It is imperative for
them to receive that 7 percentage points as it exists now. It would
be even greater if the individual income tax rate goes up to 39.6.
It is imperative for them to utilize that savings to keep their busi-
nesses afloat.
Mr. MEUSER. Thank you. And certainly within your testimony
as we saw—my time has expired and I yield back, Mr. Chairman.
Chairman WILLIAMS. Thank you.
I now recognize Ms. Chu, from the Great State of California, for
5 minutes.
Ms. CHU. Well, I know how the Tax Cuts and Jobs Act came
about because in addition to serving on the Small Business Com-
mittee, I am also a Member of the Ways and Means Committee,
which is responsible for writing our nation’s tax laws. And I was
there in 2017 when Republicans pushed through their rushed par-
tisan Tax Cuts and Jobs Act with no hearings, just a markup, and
the text revealed only at the last minute. And it was when we saw
that text that we saw firsthand that their goal was to lower taxes
for the wealthiest individuals and the largest corporations. And
that is why TCGA made the corporate tax cut permanent while
provisions for small businesses and individuals were only tem-
porary.
And even the Republicans said that some provisions were tar-
geted at main street and small businesses because of the burden-
some requirements this 20 percent qualified business income de-
duction for pass-throughs benefitted main the top 1 percent of the
businesses. In fact, the Joint Committee on Taxation estimates
that in 2024, 61 percent of the benefits will go towards the top 1
percent which is about like those businesses with incomes above
$500,000. And businesses in the bottom two-thirds of income will
only get 4 percent of the benefit. That is because TCGA made it
harder for small businesses to navigate the tax code and take ad-
vantage of these deductions.
So it is time for us to move past TCGA and create a fairer tax
code that works for small businesses, workers, and families, in-
stead of the wealthy and large corporations.
And Ms. Zimmerman, I truly appreciate you talking about some
provisions that could actually help small businesses. And I espe-
cially thank you for mentioning the Progress Act because I am ac-
tually the sponsor of it and I will introduce it, reintroduce it in the
coming months. It would support the smallest businesses, those
without any employees by both helping them expand and
incentivize third-party investment. Specifically, it would create a
refundable payroll tax credit for nonemployer firms that hire their
first full-time employee. Nonemployer firms are more likely to be
owned by women and female entrepreneurs on average start out
with roughly half the capital as male entrepreneurs.
21
So Ms. Zimmerman, can you talk about how using the tax code
could help nonemployer firms hire their first employee and how
that could improve the outcome for workers in small businesses?
Ms. ZIMMERMAN. Certainly. It is a big leap of faith to hire your
first employee and to move forward. I remember when I first
moved out of the house and added a person. It is scary. Getting a
credit for that makes it possible to perhaps do it a little sooner.
And the TCJA, we were added as an afterthought for the 20 per-
cent deduction. And they did not even consider that the smallest
C corporations got a tax rate increase when that law was passed.
We have one client that I can tell you about that earns about
$45,000. They are a C corp. That is their profit. The owner makes
about $85,000. The TCJA increased their federal tax bill $2,700 be-
cause it eliminated the graduated rates. They used to be at a 15
percent rate. Now they are at a 21 percent rate. So the flat tax,
all the money went to the upper side and the wealthy. And small
businesses were left out.
The credit for hiring your first employee, the standard deduction
for a business, the IRS education to help small businesses be com-
pliant without having to hire accountants and lawyers is what is
going to take it to the next level so that small businesses can
thrive and innovate for this country. And we brought us out of the
last recession. We, small businesses. We created 75 percent of the
new jobs. And the Wall Street Journal just recently said that small
business is actually responsible for 100 percent of the new employ-
ment in this country since the pandemic. We cannot be an after-
thought next time. We need to do the work and change the law be-
fore you reenact.
Ms. CHU. Thank you for those eloquent words.
And I yield back.
Chairman WILLIAMS. Thank you.
I now recognize Mr. Hunt from the Great State of Texas for 5
minutes.
Mr. HUNT. Thank you, Mr. Chairman. And I want to thank the
witnesses for being here. Thank you so much for your time.
It is my opinion that the federal government needs to get out of
your way as much as possible to allow you to do your jobs, to allow
you to provide for America, to allow you to provide for the world.
And at this point we are living in a world to where we are trying
to punish our hardworking Americans every single day with more
onerous government taxes. It is my opinion that the federal govern-
ment should be taxing you as little as possible because we are, We
the People, this is our money and we are investing it back into the
government and we should allow you to keep it so you can invest
back into your businesses.
That is just an overall principle that I believe in, and I feel like
it differs from many of my friends on the left. Also, if you are a
rancher and a farmer in this country, God bless you. Thank you.
Thank you for providing for this country. I cannot thank you
enough.
And so my first question is actually for my fellow Texan, Mr.
Boening. If Congress fails to act and lets the provision of the 2017
Tax Cuts and Jobs Act expire, what will be at stake for Texas
farmers and ranchers, sir?
22
Mr. BOENING. Thank you for that question, Congressman Hunt.
I guess quite simply, more and more of them will be at risk of
going out of business. Their tax bill will go up and if you cannot
pay your taxes, and it was pointed out earlier by other folks here
on the panel, I mean, you choose from paying the tax bill or going
out of business. And those things that we have talked about today,
the stepped up basis and where your capital rate is taxed and the
death tax, they are hugely important in agriculture. They will
make the difference between that operation continuing or not con-
tinuing quite frankly.
Mr. HUNT. And so, you talk about this death tax, and I often-
times hear, you know, last year I heard a company or an industry,
they had record profits. The first thing I think to myself is, hot
damn, that is really good. Yeah, that is called capitalism. And of-
tentimes these record profits make up for losses in previous years.
And so I think that is kind of what you are getting at if I am not
mistaken; right, sir?
Mr. BOENING. Yes, sir. Yes, sir.
Mr. HUNT. Could you also please kind of talk about what audits
do. Audits from the IRS, do they help spur economic growth? And
do they allow small businesses to flourish?
Mr. BOENING. You know, I guess we all will agree that audits
are necessary at times.
Mr. HUNT. Of course.
Mr. BOENING. And we are not going to, but no, they take away
resources and time that the owners of the business would be spend-
ing on their business. You know, both time resources and money
resources. So no, they do not spur economic growth. You know,
there is no way that that would work. But again, they are not
something that we look forward to. We know they are a necessary
evil. But no, they do not spur economic growth.
Mr. HUNT. Again, I just want to thank you all for being here.
Greatly appreciate it. Those are my only questions but I am blessed
to have you all around here. I am blessed to have you in my pres-
ence. I want to work, and we want to continue to work as much
as we can for you. It is not the other way around. We work for you;
not the other way around. It is my goal and our goal, at least on
this side, to make sure that we allow you to keep as much in your
own pockets so you can reinvest in your own lives, in your own
families, in your own companies moving forward for the future.
And with that, Mr. Chairman, I yield back. Thank you very
much.
Chairman WILLIAMS. Thank you.
I now recognize Mr. Pappas from the Great State of New Hamp-
shire, for 5 minutes.
Mr. PAPPAS. Thank you very much, Mr. Chairman. I appreciate
the conversation here today.
And Ms. Mucenski Keck, I wanted to start with you with a ques-
tion. I appreciate the way that you highlighted the change in the
Tax Cuts and Jobs Act as it pertains to research and experimen-
tation expenses. I have heard directly from businesses in my home
state of New Hampshire on this including one in Hanover. It is a
small business that has seen their tax lability more than double in
this tax year. And obviously, there are implications to that sort of
23
a change on their operations and their ability to innovate over
time.
Just to underscore, this is a change in tax law that contradicts
70 years of prior law where all R&E expenditures were imme-
diately expensed in the year accrued. And so discouraging the risk-
taking needed for innovation will certainly have negative impacts
on entrepreneurial startups and small technology businesses.
Clearly, the time to address this was before today, which is Tax
Day. That is why you have certainly been hearing about it as busi-
nesses have been filing their taxes this year. But I know that legis-
lation will soon be introduced in the house, a bipartisan bill that
I will cosponsor because I am hopeful that we will be able to ad-
dress this in this tax year and potentially even make it retroactive
to help provide some predictability to this issue moving forward.
Could you just, you have already addressed it, businesses that
might be forced to close their doors over this. But talk about the
environment around innovation and technology in the United
States and how crucial this particular provision is.
Ms. MUCENSKI KECK. Thank you. I appreciate the question.
It is absolutely vital that we continue with the research and ex-
perimental expenditures. I do not think everyone actually realizes
how expansive they are across industry groups. We are not just
talking about pharmaceutical companies or tech companies. We are
talking about engineering companies. We are talking about agri-
culture, plant growers. It is really something that if we want to
keep in the United States at the top of our game for lack of better
terminology, we need to give them at least the tax deduction while
a variety of other economically developed companies are giving
them much, much more. And so if we want to attract and maintain
our research in the United States, it is going imperative that that
deduction goes back to 100 percent.
Mr. PAPPAS. Well, thank you for those comments, and I cer-
tainly hope that Congress will focus on this issue and find a fix to
it this year.
Ms. Zimmerman, maybe I could turn to you. I am the co-owner
of a fourth generation family business in New Hampshire. We have
been open 106 years. It is certainly a challenging environment to
operate a small business. We have lived through a global pan-
demic. We are seeing supply chain disruptions, workforce chal-
lenges. And obviously, as we move forward, we need to ensure that
the tax code is fair, t hat it encourages small business growth and
sustainability.
One provision that I have worked to address is eliminating the
federal excise tax that is levied on heavy duty trucks and trailers.
It is something that I have heard from small businesses in my dis-
trict. It stifles their ability to be able to procure new equipment
and cleaner and safer trucks out on the roadways.
But I am just wondering more generally if you could talk about
the tax environment for our small main street businesses and
where we should be looking this Congress to help make things a
little bit easier.
Ms. ZIMMERMAN. Thank you. Yes.
Where I would be looking is to give us certainty. That matters.
To level the playing field rather than just renewing what is already
24
out there. Again, small business proportionately should have the
same advantages that large businesses do. And as a CPA, I think
the IRS funding, we need better customer service. We need mod-
ernization. And audits, while a necessary part of life, they spur
compliance. There is no question. The lower the rates go, the more
we believe that we are losing into the coffers, which means we need
higher rates for those of us that are honest. And I believe most
small business owners are honest and try to be compliant and are
not necessarily afraid of that. I do not see a huge increasing wor-
rying them.
Mr. PAPPAS. Well, thanks for those comments. I think every
congressional office increasingly hears from constituents, including
small business owners that are struggling with issues around the
IRS. They have been asked through the pandemic period not just
to do more with less but to do it at an extraordinary time in our
history. And certainly, we have got to make sure that customer
service improves, that people get their returns processed, and get
their refunds and tax credits when they need them. That is really
important for the small business world. So thanks for those com-
ments and I yield back my time, Mr. Chair.
Chairman WILLIAMS. I recognize now Mr. Alford from the
Great State of Missouri for 5 minutes.
Mr. ALFORD. Thank you, Mr. Chairman, and thank you Rank-
ing Member Velázquez for holding this important hearing today.
Good to see you all, especially from Texas. I am a native Texan,
so glad to have you. I have not seen this many Stetsons in one
room since Leddy’s down in the Fort Worth Stockyard. So good to
see you all today.
I firmly believe that America experienced its greatest economy in
my lifetime under President Trump. And it was no coincidence,
really. It was thanks to the Tax Cuts and Jobs Act of 2017. The
TCJA allowed Americans to take the leap, businesses to flourish.
It allowed our country to move forward as one nation under God.
It ushered in hope. It ushered in the reality of the American dream
once again, as small business owners around the country were all
living their own version of that American dream.
But now, just after really 2 years of the Biden administration it
has turned into a nightmare. Small businesses are struggling with
record inflation, labor shortages, supply chain issues, and all these
factors severely hurt the competitiveness of our small businesses.
The 2024 budget proposal has no intention of waking us up from
this nightmare. It proposes another $1.8 trillion in new taxes and
fails to address the TCJA’s expiring provisions. Allowing those pro-
visions to expire and increasing taxes will only hurt the competi-
tiveness of small businesses. It will crush them, the jobs that they
provide, and the communities that they serve. It is going to chill
the hope and reality of the American dream once again that we all
saw was a real possibility just a few years ago.
So I want to get to the question. I wanted to start with Mr.
Boening. Thank you so much for being here today. Thank you for
your service as the president of the Texas Farm Bureau. Missouri,
I am proud to say, has the second highest number of farms in the
nation, 95,000, but we are outdone with Texas there. I am also
proud to sit on the House Ag Committee along with Aaron here
25
and some other Members. And it is great because farmers are
small business owners. And this Biden proposal calls for $77 billion
in death tax increases. All right? How do you see this impacting
family farms and ranchers?
Mr. BOENING. Thank you. Thank you for the question, Con-
gressman.
You know, I alluded to it earlier. Agriculture, you can go ahead
and use the words land-rich, cash-poor business model. It is. It al-
ways has been. And whenever, land is one of your most important
capital investments. You know, often you lease land when you are
getting started normally in your operation, and if you are able to
acquire land you do that over the years. And then like I said, land
in Texas, as it has in many other parts of this great country has
increased dramatically.
Mr. ALFORD. Skyrocketed.
Mr. BOENING. And to have the size operation that is a full-time
farmer ranch that will support maybe your family, some extended
family, and then a few employees, it takes quite a bit of land. And
then if you want that operation to continue, how does it continue
if it is going to be taxed at 40 percent when you pass away? It just
does not make sense. We go back to the same mantra; death should
not be a taxable event. So that would be my comment.
Mr. ALFORD. Well, I hope it is not the death knell on family
farmers because that is what it is looking like if we revert to this.
Mr. Hudak, your firm focuses on small business accounting in
addition to farming. We have a lot of other small businesses in our
district in the Great State of Missouri. And I met with a lot of
those business owners, listened to their concerns. It is really heart-
ening to hear all they do through the investment, the time, money,
the energy they put into being a success. They reinvest in our com-
munity every day and every chance they can get.
From what you have seen, do businesses typically just sit on a
pile of money when they pass, when they pay less taxes? Or what
do they do with that money?
Mr. HUDAK. They invest in plant, property, and equipment al-
ways. But it is not about the tax bill. When we are talking about
the death tax, what we are doing is we are preserving a way of life.
A small business owner wakes up every single day, and some days
he is the only one who thinks it is going to work out. Not the wife,
not the dog, not the in-laws. They wake up and everybody says you
have got to stop. This is crazy. What are you doing to yourself?
They believe every single day. They are the only ones who believe.
They have heart. They have soul. They are the backbone of Amer-
ica. We are not talking about taxes. We are talking about pre-
serving a way of life. On the left and the right. And I hear both
sides agreeing on all of this stuff. Forget about the personalities.
Let’s focus on what we agree on. Because without agreement, there
can be no certainty.
Mr. ALFORD. Thank you, sir. Thank you, Mr. Chairman.
Chairman WILLIAMS. I now recognize Mr. Thanedar, I am
sorry, from the Great State of Michigan for 5 minutes.
Mr. THANEDAR. Thank you, Chairman.
26
Since, and again, this discussion is music to my ears because I
am a former small business owner and serial entrepreneur. So I
am just excited to be here.
But since the Tax Cuts and Jobs Act of 2017, small businesses
have been placed at a disadvantage, especially in paying higher
taxes and navigating the cumbersome tax code. Contrary, the tax
cuts were a gift to large corporations. They have leveraged their re-
sources and fleet of lawyers from paying their fair share and rou-
tinely exploit loopholes. As a result of the Inflation Reduction Act,
the IRS will be bolstering through increased funding to mitigate
tax cheats and ensure that fairness is omnipresent in our business
environment.
So I have a question, Ms. Zimmerman, if I may. Most would
agree the tax code should not pick winners and losers. Unfortu-
nately, it seems that the 2017 tax law did just that. That by cut-
ting the corporate tax rate from 35 to 21 percent, would you say
that the structure of the tax cuts is more beneficial to corporations
as opposed to small businesses? And what impact does it have on
inequity, inequality?
Ms. ZIMMERMAN. Absolutely. I, like you, am a serial entre-
preneur. It is in my blood. And that is why I talk about the unlevel
playing field. That we did not get the same reductions. The answer
is it hurt equity. It means that the gap between the truly wealthy
and middle class has widened. Most small business owners, and
again, there are a lot of definitions of small business, but most
small business owners from the Small Business for America’s Fu-
ture, I told you that we concentrate on smaller businesses. They
are almost all middle-class. They are lifestyle businesses. They are
working to support their families, feed them, maybe send them to
school if they get lucky. And they did not get near the break. They
did not get near the break that the large corporations did. And I
am asking that we rebalance that. We restore, reverse just a slight
portion of the larger corporation rates to be able to give a fairer
rate to small business.
We also got a very complex law that was thrown on us at the
last minute because they said, oh, no, we forgot the little guy.
Right? And so it became so complex, it limits who can take it.
Right? It takes more work to get it. It is not just a rate cut.
Mr. THANEDAR. Thank you, Ms. Zimmerman.
Also, the 2017 law affected different businesses in different ways.
However, as someone who is preparing returns for small firms,
what are some common themes you hear from your clients about
the law’s impact on their business, especially people of color who
are business owners?
Ms. ZIMMERMAN. Well, I have been told that the extra com-
plexity has wiped out their savings because they have to pay more
to an accountant to get it done.
Mr. THANEDAR. And everyone on this panel that does tax will
agree that our lives changed when that law came through. We had
to learn about 163Js and 199As and the pandemic was upon us and
all that. So, my client, as I mentioned before, a small C corporation
asked me, why did my tax go up? I thought this was a tax cut.
Now, a number of them benefited and had lower taxes. There is
no question. It was not unhelpful. It was just that it was a complex
27
way to throw a smaller bone to small business while allowing big
business to get the burden, the majority of the savings.
Thank you. Thank all of you for being here and for your testi-
mony.
And Mr. Chairman, I yield back.
Chairman WILLIAMS. I now recognize Mr. Bean from the Great
State of Florida for 5 minutes.
Mr. BEAN. Thank you very much, Mr. Chairman. Good after-
noon to you, and good afternoon to Small Business.
To those in the audience, who here owns a small business? Raise
your hand. Look at that. Thank you for coming. It is great to have
a crowd in this audience, Mr. Chairman. It is much more exciting
in person than watching C-SPAN, especially when you know what
we are talking about. We are talking about your business and we
are talking about how changes up here affect your small business.
So I am going off script, Mr. Chairman. And that is this: I have
heard this phrase several times, even during this Committee, ‘‘Pay
your fair share. People are not paying their fair share.’’
Can anybody tell me what a fair share is? Anybody? It is a toss-
up question for our all-star panel.
Mr. Hudak, jump in.
Mr. HUDAK. I could not reach the button fast enough.
Well, we keep on talking about the 2017 tax law complicating the
tax code. Does anybody believe it was simple before? Who lived
here through URISA? This is crazy. When you start talking about
audits and compliance, one-third of all the audits have to do with
the earned income tax credit. The program is not working. By the
IRS’s own admission, one out of every $4 is paid improperly. They
say it is because of lack of understanding of a complex tax code.
Well, simplify it. More than that, those dollars for the earned in-
come tax credit are supposed to be helping families lift them up out
of poverty. It needs to be tied to other programs. Do not do it
through the tax code. It causes and motivates honest people who
are willing to pay Caesar what Caesar is due to game the system
for a variety of reasons.
We have tied health care to that. Instead of paying a $10,000
bill, if they file their tax return and did not game the system it
would be $20,000. They want to pay their tax bill but they do not
want to pay the $20,000 health care bill. Stop using the tax code
for other things other than the tax code. People need help. The
earned income tax credit, fine. You want to help people, lift them
up? Tie it to a program that will help them get the skills they need.
Mr. BEAN. Well said. We have got a quick lightning round.
Ms. Mucenski Keck, what say you to fair share?
Ms. MUCENSKI KECK. [Audio malfunction]
Mr. BEAN. Gotcha. Here is a quick question. I already want to
jump in but I have got another question.
Why is anybody worried if you make under $400,000? President
Biden has said so many times he is not going to raise taxes on any-
body making under $400,000. So why is everybody worried?
Mr. Hudak, are you saying, Mr. Hudak, that that is incorrect?
That taxes have gone up on people making less than $400,000? Or
should I not be worried if I am making less than $400,000?
28
Mr. HUDAK. You should be worried. There are a lot of unin-
tended consequences. Just yesterday we talked about having a tax
bill that they cannot afford. A guy just was bought out of his busi-
ness. He has got hundreds of thousands of dollars of income. He
received not a dime of it. Not a dime of it.
Mr. BEAN. So Mr. Hudak, I do not mean to interrupt you but
the time is going, the clock is going. Are you saying before this
Committee and before all these small business owners right now
before us that they should be worried if they make under $400,000
in spite of what the president is saying? Are you saying that before
this Committee today?
Mr. HUDAK. I am. And I believe the president. It is everybody
else I have a problem with.
Mr. BEAN. 10-4.
Mr. Russell, are we in danger of losing family farms because of
unfair tax bills?
Mr. BOENING. Yes. But I did want to address the ‘‘my fair
share.’’
Mr. BEAN. Go right back to it. Yeah, sure.
Mr. BOENING. Sitting on a panel with three CPAs, my fair
share is whatever my CPA tells me I owe.
Mr. BEAN. Amen. Amen. Amen.
Thank you each for being part of our panel today.
Mr. Hudak, thank you. And your passion. We need a fair, easier
way to go and it should not take a rocket scientist to fill out taxes.
So thank you very much for coming.
Mr. Chairman, I yield back.
Chairman WILLIAMS. Thank you very much.
And now I recognize Ms. Scholten from the Great State of Michi-
gan for 5 minutes.
Ms. SCHOLTEN. Thank you, Mr. Chairman. And thank you so
much to our panelists for joining us today.
It is Tax Day. I love this theme. We are keeping on the continued
questioning about some of the complexity of the tax code. And I
wonder, and this is for Mr. Hudak and Ms. Zimmerman, if you can
talk specifically about the most complex. I hear from small busi-
ness owners all the time. In addition to some of the unfairness, it
is the complexity, the density, the difficultness, unnecessarily so of
understanding this tax code.
If you could talk about particularly some of those portions that
you find most unnecessarily complex. And what you would like to
see us in Congress do to resolve that. And particularly make filing
more accessible for small businesses who are not themselves tax
experts.
Ms. ZIMMERMAN. All right. I will jump in and go first.
I believe small businesses, a number of them have to file their
own returns. A number of them, most of them do not have a team
of lawyers and accountants. Many of them, I believe Ranking Mem-
ber Velázquez told us that the average small business makes
$75,000. With that as your profits, you very possibly are not even
hiring an accountant to do your taxes.
So the IRS, with their modernization, needs to have education
and communication out to the small business community. Use the
existing networks that are there. We have chambers. We have
29
groups of accountants like this panel that can help the IRS reach
these small businesses. Add a hotline where they can call and ask
questions. And try to figure out how do I calculate this 199A, which
sounds simple but I need to know if I am a specified service busi-
ness, and I need to know how much I have in assets and how much
I have in W2 wages if I make more, and that sort of thing. Con-
sumer centric.
Ms. SCHOLTEN. Thank you.
I have a second question. Last year the Inflation Reduction Act
included $80 billion in funding for the IRS to hire personnel, mod-
ernize systems, and increase enforcement actions.
Mr. Zimmerman, Ms. Zimmerman, excuse me. In your testimony,
you talked about how the IRS needs better customer service. You
talk now about, you know, a more consumer friendly approach. Do
you expect this IRA funding to make the agency more responsive
to the needs of small businesses and CPAs like yourself?
Ms. ZIMMERMAN. Well, I do not think at this point they can
be less responsive. It has been a real nightmare through the pan-
demic. And I recognize they had their issues also. But when I call,
and I have a practitioner’s hotline that we can call. And get people
that are supposed to be even better trained. But we cannot get
through to that anymore. And when we call and they have to jump
from one computer program to another because that one has this
information and this one has that, and oh, we do not have a copy
of that in front of us, how can they handle that? How can they be
an advocate, part of the team instead of the adversary? They can-
not. We need that modernization.
Ms. SCHOLTEN. Agreed. Do you have any suggestions or exam-
ples from your experience for ways in which this investment could
be best, most efficiently utilized to make a more consumer friendly
approach?
Ms. ZIMMERMAN. Certainly. You know, have a number that I
as a business owner, not the CPA in me but the business owner
in me, can call and discuss with the agent on the other end, so do
you think I qualify for this deduction? And where do I take it? Oh,
I do not take it on the business page; I take it over here on my
personal return. And that is not a conversation that can even be
had now with the IRS. So that to me is part of the customer service
I am talking about that we need.
Ms. SCHOLTEN. Thank you.
What about using some of these IRS funds to focus on education
and tax literacy for small businesses? Do you think something like
that would be beneficial?
Ms. ZIMMERMAN. Absolutely. The report that was released re-
cently really focused on education and leveraging technology so
they can put it out there as webinars and common things that
small businesses have questions about.
Ms. SCHOLTEN. Thank you so much. I yield back the remainder
of my time.
Chairman WILLIAMS. I now recognize Mr. LaLota from the
Great State of New York for 5 minutes.
Mr. LALOTA. Thanks, Chairman. And good afternoon, every-
body. I represent the 1st District of New York, and New York State
has the dubious distinction of having the highest taxes in the na-
30
tion at 12.47 percent. New York’s average income sales and prop-
erty taxes are almost twice as what Florida’s are. And they are the
catalyst for so many New Yorkers leaving for states like Florida.
We also lead in another category. We led in out of state migra-
tion. Said simply, more people leave our state than any other state
in the nation. And unfortunately, President Biden’s proposed tax
plan would only worsen a New Yorker’s tax burden and thus exac-
erbate my state’s loss of population. The president’s Tax Plan is
riddled with policies which will further financially burden my con-
stituents. In fact, according to the tax policies, centers 20, 22 to 20,
32 analysis. The average New Yorker’s tax burden will increase by
about $17,000. Likewise, many small businesses in my district will
be negative imply impacted by these new tax proposals as well.
These taxes are especially harmful as they will target the tax-
payer’s assets and not their income.
I am also concerned about the tax penalty on research and devel-
opment. My district is home to the Brookhaven National Labora-
tory and the Stoney Brook Neuroscience Institute to name a few.
These entities and small businesses which support them depend on
the ability to expense their research and development costs. I am
tired of Washington treating places like Long Island like a
piggybank. I have only been on the job for a few months here but
some folks in this town are competing with the folks in my state’s
capitol for taking my constituents’ money.
This frustration has motivated me to serve on this Small Busi-
ness Committee and to ensure that we are doing our part to cap
and cut taxes, to ease regulations, and where grant money exists,
to ensure that it gets to the right people.
My first question is for Mr. Boening. Sir, in your testimony you
laid out the grim but realistic future for family businesses if the
stepped up basis provision is removed. Like Texas, many of the
small businesses where I am from on Long Island are land-rich and
cash-poor. If more families have to sell their companies to the high-
est bidder, how would this affect the local communities in your
opinion, sir?
Mr. BOENING. Well, I think for one thing, it would accelerate
ag land turning into something else. I mean, we all love our shop-
ping malls and our strip centers and those type of things. But, you
know, agriculture is still very important in this country. And when
those things would d happen, if farmers and ranchers are forced to
sell, many times they are not going to sell to another farmer or
rancher because I have just discussed what land values have done.
So, you know, progress is great. And you know, one of those states
that are getting some of your folks as well from New York and
other places. But it will definitely accelerate the loss of the agricul-
tural land.
Mr. LALOTA. Yeah, the agricultural issue is not as big of a one,
although it is on the east end of my district. Any time a change
of use of a piece of land happens in Suffolk County where I am
from, the community often gets quite excited, rightfully so, about
it. So I appreciate you turning our radar onto that.
Ms. Mucenski, in your testimony you stated the failure to restore
the research and experimental expenditures provision will signifi-
31
cantly decrease innovation in the United States and even hindered
new business from forming here.
In our opinion, how would this affect small businesses which
serve entities in the community. In mine, like I mentioned earlier,
the Brookhaven National Lab and higher institutions of learning,
like Stoneybrook University.
Ms. MUCENSKI KECK. I think they are going to either have to
scale back the research that they are involved in or they are going
to have to let go of certain divisions all together. So currently, it
is just not palpable for them to keep paying these taxes related to
R&E capitalization, especially when previously they are used to
having zero taxes. And a normal grant life, if you were given a
grant and you are told that you have to spend all the grant money
on certain expenditures, then the grant’s income and all the ex-
penditures or expenses. And it is zero taxable income. And now by
pushing that out and saying you can only—you still have to include
all the income, the grand income, but you have to spread the ex-
penses out. They are not going to be able to operate at the expan-
sion or the growth model that they would have prior to that.
Mr. LALOTA. Thanks. And thinking more globally, you men-
tioned in your statement about other nations’ approach to this par-
ticular issue. How would you rate the president’s proposal com-
pared to some of our strategic competitors like China with respect
to R&D?
Ms. MUCENSKI KECK. You see most companies want the re-
search and experimental expenditures and the patents and the in-
tangibles in their country because ultimately that brings an income
stream in for you to actually tax even more. They are encouraging
it through not only saying take the deduction, they are hyping the
deduction. They are allowing you 180, 200 percent. And then they
go even further to develop something we do not need to get into
today but patent boxes where all the income coming in will be sub-
ject to much smaller tax rates. They want it. They are striving for
it. They are going for it. They are incentivizing for it. We are doing
the exact opposite.
Mr. LALOTA. Thank you very much. I yield, Chairman.
Chairman WILLIAMS. Thank you.
I now recognize Mr. Landsman from the Great State of Ohio for
5 minutes.
Mr. LANDSMAN. Thank you, Mr. Chairman.
Let me just start with the earned income tax credit because you
mentioned, Mr. Hudak, that it was not tied to a program. It is tied
to work. I mean, it is tied to work. And in a question about wheth-
er or not there are certain people who pay their fair share and
those who do not, how quickly we got to the earned income tax
credit and low-income working families is pretty astonishing. When
we know that there are companies who find all kinds of ways out
of paying what on paper they are supposed to pay in taxes, and the
same is true for millionaires and billionaires who have accountants
that can find all of the loopholes and deductions and all kinds of
different things to ensure that they do not pay what I pay or what
you pay or what my sister who is a teacher pays. And from the
part of the country I am from, and Anne is from the same place,
we are neighbors, which is a pretty cool moment for at least me.
32
Okay, for both of us. Republicans, Democrats, Independents, we do
want folks at the top who have been doing really, really well for
a long time to pay what they had in the 1990s. That I think is the
fair share. Because it allows us to balance a budget. It allows us
to do what we are supposed to do on behalf of small businesses and
working families.
So the two big tax cuts that were in the 2017 bill that have
sunsetted and it does seem like with the majority these should be
something we can both agree on. One is the R&D piece, the tax de-
duction for R&D for small businesses, and the other one is interest
payments, which I have to imagine have only gone up; right? To
be able to use both interest payments as tax deductible and the
R&D, those are two very significant, correct me if I am wrong, but
those seem to be two very significant tax benefits that small busi-
nesses have now lost, that Republicans and Democrats could come
together on and put back on the table, would it make a big dif-
ference or am I speaking out of turn here?
And since I picked on you a little bit I will let you start.
Mr. HUDAK. Every tax payer should pay exactly what they owe.
Okay? For every $1 that we spend improperly, and on the IRS
website they clearly state one out of every $4 spent in this program
is paid improperly. It serves no good purpose to talk about the big
corporations who maybe are taking advantage of the tax code in
ways we did not contemplate. But likewise, for every $1 in the
earned income tax program that is spent improperly by the IRS
and the taxpayer advocate’s own admission, that is $1 we do not
have for someone who really needs it.
Mr. LANDSMAN. It is a dollar that is in the economy though.
Mr. HUDAK. Okay. We are talking about collecting taxes. We
are talking about fairness. Fairness means every taxpayer pays
their fair share. What they owe. We are not talking about, well, it
is $1 in the economy. We are talking about paying what is owed.
The IRS admits it. It is a fact. Twenty-three percent is paid im-
properly. They are abusing the tax code. It is not working.
Mr. LANDSMAN. These are for folks who do not pay. They do
not have tax liabilities. We are supplementing what are very, very
poor private sector wages so that they can pay their bills. That is
it. So instead of focusing on all of the billions and trillions of dol-
lars over 10 years that we could be security if people paid their fair
share at the top, we are talking about all these low-income working
families that are struggling to make ends meet does not make
sense to me. But I guess the question is on R&D and interest pay-
ments, that seems like something we could all agree on should be
back on the books. No?
Ms. MUCENSKI KECK. I am just jumping in. I think from a bi-
partisan standpoint R&E is a no brainer. I think everyone supports
keeping research and innovation in the United States. I think you
are never going to get away from the interest expense calculation,
but it can definitely revert back to 2021. And I think it would be
a welcomed response due to the rising interest rates.
Mr. LANDSMAN. Yeah. On that last piece it does seem like it
is going to hit small businesses very hard this year. And it is some-
thing I would assume both parties would agree on, put it back in
33
play and maybe make it retroactive so that people can get the relief
that they missed out this year.
Anne?
Ms. ZIMMERMAN. Agree.
Mr. LANDSMAN. Okay. Well, then I yield back. Thank you.
Chairman WILLIAMS. Next I want to recognize Mr. Stauber
from the Great State of Minnesota for 5 minutes.
Mr. STAUBER. Thank you very much, Mr. Chair.
Ms. Zimmerman, why did the ice cream shop close? What was
the reason?
Ms. ZIMMERMAN. Struggling with their finances. Struggling, I
think part of it was the location. I mean, there are a lot of things
that cause a small business to close.
Mr. STAUBER. Would one of those things, would one of the
causes maybe be the additional $320 billion of additional regula-
tions on small businesses and farms since this administration has
taken over the White House?
Ms. ZIMMERMAN. They did not mention any of that when they
told me they were closing.
Mr. STAUBER. Do you think that is good for small businesses?
As a former small business owner myself I thought the regulations,
any regulations that were not necessary would be detrimental to
us.
Ms. ZIMMERMAN. I absolutely agree that we should simplify
things for small business owners. We are on the same page.
Mr. STAUBER. Yes. And so one of the things that we have to
do is we have to push back on those types of regulations that are
hurting small businesses like the new definition of the WOTUS
rule for our small businesses and farmers. It is going to be dev-
astating. And it was just this administration that changed the defi-
nition without going through Congress. And small businesses, we
always talk about small businesses being the engine of our econ-
omy. They are not only the engine; they are the innovators of our
economy. So let’s treat them like that. Let’s treat them with re-
spect. I do not see that necessarily coming from this administra-
tion.
So Mr. Hudak, do any proposals in the president’s budget stick
out to you as particularly harmful for small businesses?
Mr. HUDAK. The pass-through deductions, UBI, the capital
gains. We just rain into that recently. The capital gains problem;
right? A guy wanted to sell a business to trade in his old digs for
new digs. He is a seasoned entrepreneur. He wants to grow his
business and sell his business to the new guy; right? One out of
five small businesses succeed. The rest fail. Why? Inexperience. A
whole bunch of reasons. We cannot not reward success. Business
churning is a healthy thing. I want the seasoned entrepreneur to
dream a bigger dream and trade out that old dream. But let’s not
prevent him from doing that because he has got a capital gains bill
that he cannot afford. He cannot afford closing on that new thing.
That just happened to one of our clients recently. Well, okay, I am
sorry, American. There is one business that is not going to grow.
One entrepreneur is not going to realize his dream.
34
Mr. STAUBER. Mr. Hudak, President Biden has also repeatedly
stated that he will not raise taxes on anyone making less than
$400,000. Do you think that is true?
Mr. HUDAK. I believe President Biden when he says that. It is
not his promise. I remember a certain election. There was not going
to be any new taxes, George Bush. Anybody remember that? Right?
Both sides break their promises on this. Both sides. Codify it. Put
it in the law and I will buy it.
Mr. STAUBER. I love that answer. Put it in the law. Exactly. Be-
cause in my humble opinion, the current president has been
bloviating on Capitol Hill for 51 years now. I have always said you
will have to watch what he does, not what he says. Because in
2020 he said he was going to mine domestic critical minerals. In
Northern Minnesota we have the biggest copper nickel find in the
world and he will not mine there. He changed after he became
president which upsets me.
Ms. Mucenski Keck, there you go. Can you elaborate eon some
of these new reporting requirements that have effects or could have
effects on our small businesses, 1099Ks, for example?
Ms. MUCENSKI KECK. Oh, sure. The 1099Ks are going to be
an administrative burden on our small businesses. So under pre-
vious law they used to say you could have to report a 1099 Mis-
cellaneous or K if you use a different type of company that helps
you transact payment or acceptance. And they have lowered the
threshold, or they are proposing to lower the threshold to $600. So
if you pay or you receive $600 from a third party you should have
to fill out a form and send it to the person who you have paid or
you have received money from.
Mr. STAUBER. Is that good for small businesses?
Ms. MUCENSKI KECK. I cannot imagine the administrative
costs that they are going to have to pay to comply with that rule.
It is going to be very overwhelming and it is not great for small
businesses as was already pointed out by many. They are strug-
gling already preparing their tax forms. Now you are adding an ad-
ditional compliance layer that they probably had very little to any
actual experience with.
Mr. STAUBER. As I said earlier, small businesses are the engine
and the innovators in our economy and we have to treat them as
such. And I see the devastating effects of this administration and
their rules and regulations that they are forcing upon our
innovators and entrepreneurs.
And I yield back.
Chairman WILLIAMS. Thank you. And I would like to say
thanks to our witnesses today for their testimony, for appearing be-
fore us. And I think through a lot of testimony, there is a lot that
we do agree on. And that is encouraging.
So without objection, Members have 5 legislative days to submit
additional materials and written requests for the witnesses to the
Chair, which will be forwarded to the witnesses. I ask the wit-
nesses to please respond promptly.
If there is no other further business, without objection the Com-
mittee stands adjourned.
[Whereupon, 4:08 p.m., the committee was adjourned.]
35
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