STATEMENT
Of the Honorable Nydia M. Velazquez, Chairwoman
United States House of Representatives, Committee on Small Business
Full Committee Hearing: “Modernizing the Tax Code: Updating the Internal Revenue Code to Help Small Businesses Stimulate the Economy”
April 10, 2008

As we approach April 15th, millions of Americans are preparing to meet the tax filing deadline.  Individuals and businesses are busy working through tax forms and schedules to determine what they owe the IRS.  For entrepreneurs, however, the tax code has become an obstacle to success, rather than a means of encouraging the expansion of their firms. 

Today’s hearing will look at ways U.S. tax policy can be improved to provide immediate relief for these leaders of U.S. economic activity. While the most recent Economic Stimulus Package was focused on rebate checks—which aim to boost consumer spending—more can and must be done to foster sustainable economic growth.

The tax code is often used to influence and encourage individual and business decisions.  In fact, the Internal Revenue Code is filled with numerous preferences—deductions, credits, or favorable tax rates—that boost investment in business, savings for retirement, and homeownership.  However, in numerous ways, the tax code is stacked against the average small business owner.

Despite a number of changes in the past ten years, there continue to be an abundant of inequities and unnecessary complexities in our tax laws.  While fundamental reform may be years away, there is an opportunity to modernize some of the more antiquated provisions, which raise major obstacles and are particularly harmful to entrepreneurs.  

Today’s hearing will focus on those aspects of the code that can—and should be—updated or simplified without delay.  In conjunction with this hearing, the Committee will also release a report outlining those reforms that would help small businesses weather the economic downturn and put us on the path to recovery.

In its review of the nation’s tax laws and their impact on entrepreneurs, the Committee found that a number of provisions fail to adequately reflect the changing economy.  Tax policies simply have not kept up with the shift to a service-based economy and lack adequate recognition of the role technology plays. 
Furthermore, home-based businesses are unnecessarily hampered by paperwork burdens, and, depreciation schedules don’t reflect the realities of the equipment and buildings that are part of today’s small companies.  Last, but not least, there are provisions in existing law that shift investment away from small firms.

The report outlines reforms for each of these problems while reflecting a need to update the tax code to spur innovation and growth.  Given that the last major reform of the tax code took place in 1986, it is clear these changes are long overdue.   

Today, we will hear from business owners who can provide us with additional insights into how the tax code is affecting this important sector of the economy.  From what we already know, the facts are not encouraging.  While small firms are America’s chief job creators, just last week, we learned that 80,000 more jobs were lost in March.  We must take action to stop these trends and instead of losing jobs make sure we are creating them.

I believe there exists an opportunity for this Committee and Congress to implement some immediate reforms.   Doing so will have immediate benefits for small businesses.  It will also ensure the nation’s long-term economic growth.