Tax Code Bypasses Women Entrepreneurs

Tax Code Bypasses Women Entrepreneurs

While Republicans are finishing up a tax plan to overhaul the system. They should also consider making the U.S. tax code more accessible to women entrepreneurs

According to ground breaking research that I did through American University’s Kogod Tax Policy Centre. On how the tax code impacts women business owners. Current federal tax incentives designed to assist small businesses grow or access capital. Effectively exclude or bypass the majority of women-owned businesses. My research focused on whether small business owners of women can or do take advantage tax breaks for them.

Our research revealed a major blind spot in the U.S. tax code and women business owners. Our survey data, together with our review and analysis of tax research on the subject. Show that many women-owned businesses are not able to access more than US$255 million worth of tax incentives. Congress created to assist small businesses. For lawmakers, my question is: Will Congress seize this once-in-a generation. Opportunity to pass comprehensive tax legislation that recognizes the difficulties women business owners face as well as how we can help them through tax code?

A Growing Economic Contribution Tax

Since 1986 when Congress overhauled the tax code, the number of women-owned. Businesses has increased from 4.1 million in 1986 to more than 11,000,000 at the end 2016. They now make up more than a quarter of all U.S. companies. They employ 9,000,000 people and contribute $1.6 trillion to our economy. Nearly all of them are small businesses.

Recent years have seen their ranks grow at five times the rate of the national average for all business. Increasing 45 percent between 2007 and 2016, a period which included the Great Recession. It is even more remarkable that this feat was achieve by women without the benefit of small business tax breaks.

Tax Myopia

Congress has made a variety of efforts to encourage women’s business ownership over the years. They have passed legislation that targets discriminatory lending practices, and promoted federal counseling and contracting opportunities for women business owners.

The Equal Credit Opportunity Act of 1974, for example, prohibited discrimination in credit-granting based on marital or sex status. The Women’s Business Ownership Act of 1998 supported small-business ownership by women and created the National Women’s Business Council.

The Small Business Reauthorization Act of 2000 also established a program to assist women-owned businesses in obtaining federal contracts. However, lawmakers are blind to the serious disadvantages that women face in accessing capital for their businesses. This is despite the fact that they have repeatedly addressed this problem in the tax code.

The Office of Advocacy of the Small Business Administration released a report earlier this year that showed that women-owned businesses consistently fall behind in terms of employment and revenue. Another congressional study found that only $1 out of every $23 in conventional small-business loans goes to women-owned businesses.

Billion Dollar Blind Spot

My report, Billion Dollar blind spot, How the U.S. Tax Code’s Small Business Expenditures Impact Women Businessowners was create by Women Impacting Public Policy. This non-profit trade association devote promoting women entrepreneurs survey 515 female business owners to analysis their use of four key tax expenditures that are design to encourage small business growth.

Section 1202 permits capital gains exclusion for profits from the sale of qualified small-business corporation stock. This provision is expect to cost taxpayers $6.2 trillion over the next five-years. It excludes service businesses from qualifying as most women-owned businesses work in the service sector.

Section 1244 allows small-business investors to treat losses as ordinary losses. Over the next 10 year, it is expect to cost $500,000,000. Section 179 allows for an accelerated deduction from the tax on equipment investments in tangible personal property that has a value greater than $248 billion within five years. Section 195 allows for a $5,000 deduction to cover start up costs. It is estimate that it will cost at least $400m over five years.

These Results Were Very Informative

These three provisions are so restrictive that most women-owned businesses can’t make use of them. This makes it difficult for business owners to access capital through tax breaks. These rules exclude service businesses or bypass those that aren’t C corporations or have made few capital intensive investments and therefore can’t claim the deduction.

This is because 61% of women-owned businesses are in the service industry. While most small businesses are not organize as a C-Corp. This makes it difficult to attract investors. These findings were confirm by our survey data. Very few respondents claimed to have ever used sections 1202 (less that 1%) or 1244 (6 percent), while more than half of those surveyed don’t fully enjoy section 179.

Women business owners could be missing out on more than $255 billion in U.S. aid over the next few decades on these provisions. Our survey data also confirmed that women business owners can take advantage of tax breaks. Nearly 60% of respondents claimed the start up deduction.

We also found that there was no government research about how the tax code impacts women business owners. The Senate and House tax-writing committees have not held a hearing about the issues faced by women business owners or whether the small business tax incentives in the tax code are working as intended. These critical questions are not being answered by the relevant government agencies, which is why there is a lack of data. The Internal Revenue Service and Treasury Department, as well as the SBA, don’t have tax data for women-owned businesses, which account for almost 40% of all U.S. companies.

Positive Tax Signs

Despite the current state of affairs there have been positive signs that lawmakers are not going to ignore the issues raised in our report. Both the Senate and House of Representatives have examined our research and are considering its importance. Democratic Senator Jeanne Shaheen referenced our report at a June committee hearing, and I testified earlier this month before the House Committee on Small Business.

The lack of data from the government and oversight by Congress on small business tax expenditures leaves lawmakers without vital information. This raises questions about whether these tax provisions work as Congress intended. Research from academic and government sources has consistently shown that women business owners face barriers to capital.

Congress doesn’t have enough information to make the right decisions for these 11 million small businesses to overcome their existing obstacles to growth. This is a stark contrast to the 2016 commitment Congress made to evidence-based policymaking. As they work to reform the U.S. tax code, policymakers have the opportunity to speak on behalf of women-owned businesses.