Paul L. Caron

Saturday, July 7, 2018

How Small Business Tax Expenditures Impact Women Business Owners

AUTax Policy Center (Kogod School of Business, American University), Billion Dollar Blind Spot: How the U.S. Tax Code's Small Business Expenditures Impact Women Business Owners:

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.

  • We report that while women-owned firms have increased to total more than one-third of all U.S. firms, the majority of women business owners are small businesses operating in service industries and they continue to have challenges growing their receipts and accessing capital.
  • At the same time, three of the four tax expenditures we assessed that Congress targeted to help small businesses grow and access capital are so limited in design that they either (i) explicitly exclude service firms, and by extension, the majority of women-owned firms; or (ii) could effectively bypass women-owned firms who are not incorporated or who are service firms with few capital-intensive equipment investments altogether.
  • Our survey data corroborates these findings, and nevertheless suggests that when women-owned firms can take advantage of tax expenditures, they do. However, there is an absence of government data and research on these issues that demonstrates an acute need to develop research to measure the effectiveness of tax expenditures with respect to women-owned firms.
  • Our findings raise questions as to (i) whether the Code’s small business tax expenditures are operating as Congress intended; and (ii) whether the cost of these expenditures has been accounted for in terms of women-owned firms.

In the context of answering these questions impacting millions of women business owners, we report that policymakers and stakeholders have a billion dollar blind spot when it comes to understanding how effective small business tax expenditures are with respect to women-owned firms. This blind spot indicates Congress does not have the information necessary to make evidence-based tax policy decisions with respect to women business owners. Ultimately, this report identifies a critical need to develop tax research specific to women-owned firms and recommends strategies for doing so.

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