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Billion-Dollar Blind Spot
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Report: Women Business Owners Miss Out on Key Tax Provisions Designed to Stimulate Small Business Growth

Research released today by American University’s Kogod Tax Policy Center and Women Impacting Public Policy (WIPP) shows that women business owners are missing out of key tax provisions and can’t take full advantage of more than $255 billion in tax incentives designed to stimulate small business growth, access to capital and investment because of how they are legally organized and the industries they are in.

Kogod’s report, Billion Dollar Blind Spot: How the U.S. Tax Code’s Small Business Expenditures Impact Women Business Owners, which used a national survey of WIPP-affiliated women business owners as part of its analytical foundation, also concludes there is a dearth of government research into how women business owners use the tax code. This means Congress can't make evidence-based tax policy decisions to help women-owned firms as it conducts the first comprehensive overhaul of the tax code since 1986.

 

“Policymakers have a billion-dollar blind spot when it comes to understanding how effective small business tax expenditures are with respect to women-owned firms,” said Caroline Bruckner, the report’s author and managing director of the Kogod Tax Policy Center. “Tax reform, which Congress is beginning to undertake, is essentially the process that determines who wins and who loses under a revised tax code. Given that current estimates suggest small business tax expenditures will cost U.S. taxpayers more than $255 billion by 2020, policymakers and their voters are entitled to an accounting of which industries and which small businesses benefit most from those expenditures and why. Congress must be informed when making these decisions or women business owners could continue to lose out.”

The last time Congress overhauled the tax code in 1986, there were 4.1 million women business owners. Today, there are more than 10 million,” said WIPP President Jane Campbell. “Our report finds that policymakers have a blind spot when it comes to understanding how effective tax incentives are in helping women-owned businesses grow and access capital. That needs to change. Women business owners are a burgeoning economic force and they need a tax code that will help them succeed. The economy, our workers and our country will be better off for it.”

WIPP and its coalition partners surveyed 515 women business owners across the country to determine how they are using small business tax provisions. Kogod used the results to perform an in-depth analysis on four key sections of the tax code (Sections 1202, 1244, 179 and 195) designed to help small business. The resulting 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.

The report suggests 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.

Examples include:

·      Less than 1 percent of all respondents (just three out of 515) have attracted capital for their business by taking advantage of Section 1202. The vast majority of women business owners surveyed are unable to use Section 1202 to attract investors because they are organized as something other than a C-Corp or are in services industries, which are excluded.

·      The majority of women-owned firms aren’t taking full advantage of Section 179, a well-known provision that allows businesses to deduct business equipment. The survey found 53 percent of women business owners do not take advantage of Section 179. Just 47 percent do use it—which is a significantly lower uptake rate than existing government research finds for businesses generally. 

In 1976, the U.S. Census Bureau released its first ever report on the state of women’s business ownership in the United States, which counted 402,025 women-owned U.S. firms representing only 4.6 percent of all firms and 0.3 percent of all U.S. business receipts, as of 1972.  Today, women-owned firms have grown to more than 10 million businesses representing more than one-third 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 worked to enhance the U.S. tax code to aid small businesses with tax expenditures targeted to small firms, which are estimated to cost U.S. taxpayers more than $250 billion by 2020 under current law.

However, at no point have policymakers meaningfully and specifically looked at whether this will be money well spent when it comes to women business owners.  

This report identifies a pressing need for in-depth government and academic research on how small business tax expenditures impact women-owned firms to provide policymakers, stakeholders, the media and public with the information necessary to make clear-eyed, evidence-based policy decisions as Congress moves forward with tax reform,” Bruckner said. “Women in business are an economic force and they deserve a tax code that unleashes the full potential of their businesses.”

The survey of 515 women business owners was conducted by WIPP. It was an opt-in online survey using Survey Monkey of WIPP’s members and associates, and members of its coalition partners.

As part of the research, WIPP surveyed 515 women business owners who are members of WIPP or our coalition partners. Read the results of our survey here.

Kogod Tax Policy Center used the survey results to complement its analysis of the tax code. You can read the full report here.

 

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