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1 Scott J. Moody, The Impact of Tax Complexity on Small Businesses 1 (2000)

handle is hein.taxfoundation/taxfaakc0001 and id is 1 raw text is: TONX DON FOUNDATION September 2000 The Impact of Tax Complexity on Small Businesses Testimony Before the Subcommittee on Tax, Finance, and Exports of the House Small Business Committee ByJ Scott Moody Mr. Chairman and Members of the Com- oun atin mittee, it is an honor for me to appear before your committee today on behalf of the Tax Foundation to discuss the impact of tax com- plexity on small businesses. The Tax Foundation is a non-profit, non- partisan research and public education organi- Small corporations - those with less than $1 million in assets - spent at least 27 times more on compliance as a percentage of assets than the largest U.S. corporations - those with $10 billion or more in assets. zation that has monitored fiscal policy at all levels of government since 1937. The Tax Foundation is neither a trade association nor a Ironically, all of their compliance effort is essentially for naught from a public finance point of view because the largest firms in asset size, with assets of more than $250 million, pay well over three-quarters of the corporate income tax take. lobbying organization. As such, we do not take positions on specific legislative proposals. The Tax Foundation does not receive any fed- eral funds. Basic Principles Our goal is to explain as precisely and as clearly as possible the current state of fiscal policy in light of established tax principles, so that you, the policy makers, have the informa- tion to make informed decisions. Among these principles, several apply to the issue at hand. A good tax system should: (1) be as simple as possible; (2) not be retroactive; (3) be neutral in regard to economic activities; and (4) be stable. Because complying with tax laws is a fixed cost for any business, it seems likely that smaller businesses will bear a greater relative compliance burden than larger companies. In fact, this is a common research finding, and all the studies the Tax Foundation has ever con- ducted on tax complexity demonstrate that economies of scale exist in tax compliance. In 1996, for example, small corporations - those with less than $1 million in assets - spent at least 27 times more on compliance as a percentage of assets than the largest U.S. corporations - those with $10 billion or more in assets. This is especially important to consider because more than 90 percent of all U.S. corporations have assets of less than $1 million. Ironically, all of their compliance effort is essentially for naught from a public finance point of view because the largest firms in asset size, with assets of more than $250 million, pay well over three-quarters of the corporate income tax take. Clearly, this disproportionate effort by small firms yields a poor cost-benefit I I ItIl

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