NCPA - National Center for Policy Analysis

Tax Code Overhaul Could Put Small Business at Risk

November 22, 2013

Small business owners might be right to worry about a tax code overhaul. It turns out small businesses benefit most from some of the breaks that could be at risk, new research suggests. Those include the domestic-production deduction; accelerated depreciation deductions; and some retirement-savings breaks, says the Wall Street Journal.

A study sponsored by the Small Business Administration Office of Advocacy could provide more ammunition for small-business critics of the tax-overhaul effort, which is reaching a critical stage in coming weeks.

However, most tax expenditures remain part of the tax code for specific reasons and with particular objectives (e.g., increased investment) and removing these provisions could cause unintended economic disruption.

  • Tax expenditures are provisions in the tax law designed to benefit specific groups of taxpayers.
  • They are similar to spending programs but generally do not involve direct federal outlays.

Critics of tax expenditures sometimes refer to them as "loopholes in the tax law" that benefit particular industries or interest groups at the expense of other taxpayers who cannot avail themselves of the same benefits.

Simply identifying a tax provision as a tax expenditure does not automatically mean the provision is a loophole that facilitates tax avoidance. In many cases, the provision represents an incentive to stimulate certain economic activity.

Source: John D. McKinnon, "Study: Tax Revamp Could Put Small-Businesses Breaks at Risk," Wall Street Journal, November 6, 2013. Quantria Strategies, "Measuring the Benefit of Federal Tax Expenditures Used by Small Businesses," U.S. Small Business Administration, November 2013.


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