As Congress tackles tax reform, women business owners need them to do some homework

Earlier this week, leading business groups sent a letter to Congressional leaders urging them to press forward with a budget resolution so they can tackle comprehensive tax reform. But before Congress rushes into tax reform, it must do some homework to ensure any new policies do the most they can to help small businesses grow.

We know the current system isn’t working well for many small businesses, but more work needs to be done with respect to women-owned businesses—99 percent of which are small, according to the Small Business Administration’s Office of Advocacy

ADVERTISEMENT
Groundbreaking new research by American University’s Kogod Tax Policy Center looks at tax incentives aimed at helping small businesses grow and access capital. In producing Billion Dollar Blind Spot: How the U.S. Tax Code’s Small Business Expenditures Impact Women Business Owners, we worked with Women Impacting Public Policy to survey 515 women business owners to understand how tax provisions that Congress developed to help small businesses (Sections 1202, 1244, 179 and 195) impact women business owners. Our research found women-owned firms are potentially missing out on more than $255 billion from these tax breaks. 

In fact, three of the four tax provisions we looked at are so limited in design that they either explicitly exclude service firms, and by extension the majority of women-owned firms who operate in service industries, or effectively bypass firms that are not C-Corporations or have few capital-intensive equipment investments. This means women business owners cannot take full advantage of these tax incentives designed to foster business growth and investment.

For instance, only three of the women business owners surveyed indicated they had used Section 1202 to raise investment capital. That’s less than 1 percent of respondents who have taken advantage of a tax incentive that will cost taxpayers $6 billion over the next few years, according to the Congressional Joint Committee on Tax.    

Our survey data also indicated that women-owned firms claim Section 179 expensing at lower rates than small businesses generally. Section 179 is one of the most expensive small business tax provisions in the tax code and will cost taxpayers more than $248 billion in the next few years. However, our survey found just 47 percent of women business owners use it—significantly less than Treasury’s own research finds.   

When we asked Treasury and the IRS for data to compare with our survey results, we found they don’t track any information specific to how the tax code impacts women-owned firms. What’s more, neither Congress nor SBA has accounted for whether the tax incentives targeted to help small businesses grow is money well spent when it comes to women-owned firms. 

This matters because less than 4 percent of investor funds go to women-led businesses, and women receive only 4 percent of commercial loan dollars. Women are struggling to access capital. The tax code shouldn’t work against them, too.

Our research shows that policymakers and stakeholders have a blind spot when it comes to understanding how the tax code impacts women business owners and raises new questions about whether small business tax expenditures are operating as Congress intended.

This issue has a dramatic impact on the economy. The percentage of firms owned by women has soared from 4.6 percent in 1976—the first time the Census released a report on women’s business ownership—to 38 percent today. There are more than 11 million women-owned businesses with 9 million employees and they contribute $1.6 trillion to the economy. As we move forward, we need to know what in the tax code works for these firms and what doesn’t. 

Women business owners have been starting and growing businesses at a breakneck pace in recent decades despite their challenges accessing capital. Imagine what they could do if the tax code created stronger investment opportunities to help them grow and scale. At the very least, the tax-writing committees should hold hearings on these issues, which have billion-dollar budget implications and impact millions of American small businesses. 

Caroline Bruckner is the managing director of American University’s Kogod Tax Policy Center


The views expressed by this author are their own and are not the views of The Hill.