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Dunkelberg: Every Time Congress ‘Simplifies’ It Gets Worse for Taxpayers

Let me get this straight, a guy who “fudged” his tax return and now runs the IRS thinks small business owners are cheating on their taxes (the so-called “tax gap”) and depriving the government of the revenue it needs to grow ever larger?

And the remedy? A provision in the health care bill that requires 1099 reports on all payments in excess of $600, allegedly to prevent tax evasion (which would not have prevented his “fudge”).

The compliance costs of this provision are HUGE for the nation’s small businesses, not that Congress ever cared that it might cost a $1 for the private sector to deliver 10 cents of revenue. All it cares about is the revenue. No one who truly pays attention to compliance costs would even mention a VAT, easy for GM but a nightmare for 6 million owners of small firms with an average of 10 workers, no legal department, no IT staff etc.

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Every time Congress “simplifies” it gets worse for taxpayers.

And Congress would love a VAT because an increase in tax rates immediately shows up as higher prices so consumer will complain to businesses, not to Congress.

The most valuable asset a small business has is the owner’s time.

The more we divert that time to paperwork and compliance with health care requirements etc etc, the less time the entrepreneur has to devote to producing goods and services that consumers want and the jobs associated with serving those consumers. Tax code complexity and frequent changes in the tax code continually rank among the top ten “most important problems” facing small businesses, far above issues related to borrowing or raising capital. Paperwork hits the top ten regularly as does “unreasonable government regulations and red tape”. These waste valuable financial and human capital, diverting resources from the fundament task of creating output and jobs.

With health care and financial reform, the world will become only murkier for small business owners.

It will take years for the regulations that implement these monstrous bills to be drafted and vetted, a perpetual cloud of uncertainty. Congress doesn’t like worrying over laws they have already passed to make sure they work well, they’ll just move on to more new stuff. The growth potential of this economy would be immensely magnified if we could have legislators who took the time to understand the economy (hey, even just read the bills!) and would think of the long run rather than the next election.

That won't happen until the voters demand it.



William Dunkelberg is an Economic Strategist, Boenning & Scattergood and Chief Economist, National Federation of Independent Business.