Paul L. Caron

Wednesday, July 15, 2020

Women Business Owners And Tax Reform

Caroline Bruckner (American University, Kogod School of Business), Doubling Down on a Billion Dollar Blind Spot: Women Business Owners and Tax Reform, 9 Am. U. L. Rev. 47 (2020):

In 1972, the U.S. Census Bureau began tracking the total number of women-owned firms and found women owned only 4.6 percent of all U.S. firms. Since then, the total number of women-owned firms (defined as 51 percent or more as owned by women) has grown exponentially to represent 42 percent of all U.S. firms in 2019. During this period, Congress has supported 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 regularly worked to enhance the U.S. Internal Revenue Code to benefit small businesses on a number of fronts. Most recently, in December 2017, Congress passed major tax reform legislation (commonly referred to as the “Tax Cuts and Jobs Act” or “TCJA”) to provide tax relief for businesses and families. The initial estimated cost to taxpayers was substantial and projected to increase federal deficits by more than $1.8 trillion from 2018-2027.

However, at no point prior to the TCJA did the Congressional tax writing committees consider whether this would be money well spent when it comes to women business owners (“WBOs”). This is problematic because while women-owned firms have grown to more than 40 percent of all U.S. firms, the majority are small businesses operating in service industries and continue to face challenges growing their receipts and accessing capital. The challenges that WBOs face are not new and Congress had the opportunity to consider them in connection with the 2017 TCJA debate. It failed to do so.

This article considers Congress’ efforts to spur economic growth through the TCJA with respect to WBOs and finds that Congress effectively doubled-down on the billion dollar blind spot it has with respect to WBOs and tax expenditures targeted to small businesses.

Part I provides background on women’s business ownership and reviews how WBOs are organized, their average receipts, and growth trends as well as the ongoing challenges WBOs encounter growing their businesses and accessing capital. Part II introduces new data on the absence of women testifying before the tax-writing committees as part of the tax reform process. Specifically, Part II reviews the participation of women testifying before the U.S. Senate Committee on Finance and the U.S. House of Representatives Committee on Ways and Means during tax reform and legislative hearings held during the 110th through the 115th Congresses. Part III summarizes two small business tax expenditures Congress funded in the TCJA that reflect the unintended consequences of Congress’ billion dollar blind spot, including: (1) Section 199A – 20% Deduction for Qualified Business Income; and (2) Section 179 – Accelerated Deduction for Small Businesses. Part IV considers more recent efforts by Congress to consider how tax policy impacts WBOs and suggests strategies for Congress to engage in effective tax expenditure oversight and evidence-based policymaking.

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