Caroline Bruckner (Kogod Tax Policy Center), Billion Dollar Blind Spot: How the U.S. Tax Code's Small Business Expenditures Impact Women Business Owners:
In 1976, the U.S. Census Bureau (Census) released its first ever report on the state of women's business ownership in the United States that counted 402,025 women-owned U.S. firms representing only 4.6% of all firms and 0.3% of all U.S. business receipts, as of 1972. Today, women-owned firms have increased to 11.3 million businesses representing 38% of all U.S. firms.
During this period of extraordinary growth, Congress has acted to promote women's business ownership by passing legislation designed to eliminate discriminatory lending practices and promote federal contracting and counseling opportunities for women business owners. At the same time, Congress has also worked to enhance the U.S. tax code (the "Code") to aid small businesses with tax expenditures that will cost U.S. taxpayers more than $255 billion in the next five years under current law.
However, at no point have policymakers looked at whether this will be money well spent when it comes to women business owners and the challenges they have growing their receipts and accessing capital.
This report, in keeping with the mission of the Kogod Tax Policy Center (KTPC) to conduct non-partisan policy research on tax and compliance issues specific to small businesses and entrepreneurs, provides an initial assessment of how the Code's tax expenditures targeted to help small businesses grow and access capital impact women-owned firms. The results are eye-opening.
The report shows that:
- Most women business owners are small businesses operating in service industries and are legally organized as something other than a C Corporation.
- Three of the four small business tax expenditures studied are so limited in design that they either explicitly exclude services firms, and by extension, most women-owned firms; or effectively bypass women-owned firms that are not incorporated or are service firms with few capital-intensive equipment investments.
- When women-owned firms can take advantage of tax breaks, they do.
- There is little or no tax research on how women business owners use the tax code.
These results suggest that because of the way their businesses are legally organized or because of the industries they are in, women business owners can't use these provisions to take full advantage of $255 billion in tax incentives to grow their businesses that the Joint Committee on Tax projects small businesses will claim from the provisions between 2016 and 2020.
Ultimately, this report identifies a critical need to develop tax research specific to women-owned firms and recommends strategies for doing so. The report has revealed a significant "blind spot" in the US tax code.