Witnesses Tell JEC That Tax Reform Would Encourage More Business Startups, Hiring
Joint Economic Committee Chairman Pat Tiberi (R-OH) led a committee hearing entitled “The Startup Slump: Can Tax Reform Help Revive Entrepreneurship?” on October 3, 2017. At the hearing, JEC members discussed how to reverse the declining rate of startups, the true drivers of net new job creation in the United States. At a hearing earlier this year, members heard that barriers like overregulation and our outdated tax system were the biggest barriers to new business formation. This hearing focused on specific ways entrepreneurs would benefit from tax reform.
Chairman Tiberi explained how entrepreneurs can help drive our economy and create opportunity for workers:
“Entrepreneurship matters. It matters because startup businesses drive the innovation that fuels economic growth and opportunity. Very importantly entrepreneurs matter because nearly all the gains in job creation come from businesses less than a year old – true startups. … Tax reform is a key tool in our policy arsenal that could remove artificial barriers to starting a business and foster an environment where entrepreneurship can thrive.”
John Dearie, founder and president of the Center for American Entrepreneurship, testified:
“The current tax code presents a number of challenges for startups – challenges that can amount to the difference between survival and failure. Specifically, the current tax code penalizes businesses with substantial early year losses, discourages investors from backing new businesses and impedes successful new companies from expanding. The broad objectives of the framework for tax reform … are very promising. Simplifying the code, broadening the base by eliminating loopholes, lowering business tax rates, allowing full expensing of business investment, and moving to a territorial system are the keys to a modern and competitive tax code.”
Falon Donohue, chief executive officer of VentureOhio, described her experience working with entrepreneurs and those wanting to support new business ventures:
“I speak with investors and entrepreneurs every day who are taking massive risks to create jobs and grow our economy. These people are doing everything they can to revitalize communities, create new jobs, create high-paying jobs in their hometowns and they need our support. They need support from their communities and they need support from their leaders. They need a simplified tax code and access to capital.”
Scott Hodge, president of the Tax Foundation explained:
“There is a tendency among lawmakers to want to do something to help entrepreneurs; you should avoid the urge to subsidize them or give them special treatment. Instead, you should aim to get the tax code out of the way of entrepreneurs by making it more simple, less burdensome and eliminating all the anti-growth biases that are throughout the code.”
Congressman Erik Paulsen (R-MN) pointed out that comprehensive tax reform, not just corporate tax reform is important. He said small businesses structured as pass-throughs are facing high taxes and asked about the importance of lowering not only the corporate rate but the effective pass-through rate as well.
Mr. Dearie responded that it is very important for pass-through rates to be lowered because higher taxes for startups means less operating capital, which could be the difference between success and failure.
Congresswoman Barbara Comstock (R-VA) argued that America’s relatively high business rates are making our country an unattractive location for many tech companies. Panelists noted that countries like France and Great Britain now have much lower rates than the U.S. and that economists have stated that a high corporate rate is the most economically harmful tax policy.
Congressman Darin LaHood (R-IL) pointed out that according to the Economic Innovation Group, from 2010-2014 half of the net growth in the number of businesses took place in five metro areas. He asked what can be done to inspire innovation and growth in rural America.
Ms. Donohoe stated that a simplified tax code would help more rural entrepreneurs as well as the bipartisan Investing in Opportunity Act, sponsored by Chairman Tiberi, which would encourage investment in struggling areas and drive economic growth right where it is needed most.
