The Joint Economic Committee recently explored how tax reform could promote entrepreneurship and reverse the trend of declining business startups in a hearing led by U.S. Rep. Pat Tiberi (R-OH), the chairman of the committee.
Committee members U.S. Reps. Erik Paulsen (R-MN), Barbara Comstock (R-VA) and Darin LaHood (R-IL) also took part in the hearing.
Earlier this year, Tiberi convened a hearing to explore barriers to new business formation, including over-regulation and an outdated tax system. Building on those efforts, he convened another hearing on Oct. 3 titled “The Startup Slump: Can Tax Reform Help Revive Entrepreneurship,” to explore the specific benefits of tax reform for entrepreneurs.
“Entrepreneurship matters,” Tiberi said. “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.”
Highlighting the importance of comprehensive tax reform instead of merely corporate tax reform, Paulsen noted that most small businesses are structured as pass-through businesses, and owners face high tax rates as a result.
John Dearie, the founder and president of the Center for American Entrepreneurship, testified that lowering business tax rates, simplifying the tax code, broadening the tax base by closing loopholes, allowing full expensing of the business environment and moving toward a territorial system are keys to comprehensive tax reform.
“The current tax code presents a number of challenges for startups — challenges that can amount to the difference between survival and failure,” Dearie said. “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.”
Comstock stated that relatively high business tax rates have made America an unattractive location for many tech startups. Business tax rates are lower in countries like Great Britain and France, and Comstock noted that tech companies could move elsewhere to conduct business.
LaHood, meanwhile, searched for solutions to spur innovation and growth in rural areas. He noted an Economic Innovation Group report that found half the net growth in businesses took place in five metropolitan areas from 2010-2014.