Tax Analysts®Tax Analysts®

My Subscriptions:

Featured News

July 30, 2013
Baucus and Camp Tout Simplification at Tax Reform Tour Stop in Philadelphia
by Lindsey McPherson

Full Text Published by Tax Analysts®


While touring a New Jersey appliance store on July 29, House Ways and Means Committee Chair Dave Camp, R-Mich., commented that he had never seen a microwave in a drawer before.

Camp seemed intrigued by the hidden appliance, but he is not impressed by all the hidden provisions and incentives in the tax code.

He and Senate Finance Committee Chair Max Baucus, D-Mont., spoke with the owner of the appliance shop -- Mrs. G TV and Appliances President Debbie Schaeffer -- and her accountant -- Marguerite L. Mount of the Mercadien Group -- about the need to simplify the tax code.

Simplification was the theme of the day as Camp and Baucus took to the road, visiting two businesses and a taxpayer in the Philadelphia metropolitan area.

Mrs. G's, located in Lawrenceville, N.J., was the first stop of the day. Camp and Baucus then had a private meeting with an accountant in the suburbs of Philadelphia who had submitted a tax reform suggestion via the two chairs' TaxReform.gov website, before venturing into the heart of the city to The Hub LLC, a meeting space and event support service provider catering to businesses.

"Clearly, the overwhelming message of simplifying is something that any start-up or small business" can benefit from, Camp told reporters at the end of the visits.

"It's simplification; that's the main thing," added Baucus. He said small businesses spend a disproportionate amount of their time complying with the tax laws compared with big corporations. "That's time small business could otherwise be making a better product, out on the floor selling stuff, doing stuff," he said.

Both Mrs. G's and The Hub are organized as passthrough entities, with income from the enterprises taxed at individual rates.

"Passthroughs are going to need some and deserve some incentives," Baucus said, citing expensing and inventory deductions as examples but otherwise declining to provide more specific examples of what existing tax incentives for small business he would keep in a tax code rewrite. "It's just not the proper time," he said. "We haven't even gotten to the bill."

Camp also declined to discuss specifics, saying they need to see the whole package. "There's so many interactive aspects of the tax code," he said.

Baucus said he and Camp have discussed the need to incentivize small businesses "in addition to getting rid of a lot of the dead weight and the complexity."

The visit to greater Philadelphia was the second in a planned series of public meetings around the country that the pair want to hold on tax reform. The two men visited businesses in the St. Paul, Minn., area on July 8. The date and location of the next stop have not been announced.

Camp said the visits remind him and Baucus of the importance of the task at hand. "It was very helpful to meet many of the employees that worked at Mrs. G's, for example," he said. "One had been there 40 years and his son was now working there. I think that's the kind of long, sustained kind of growth in a business that we want to try to make sure that the code doesn't prevent."

But the visits also serve as a more subtle reminder of how difficult tax reform will be.

Neither of the business owners was willing to identify specific tax incentives they would be willing to part with in exchange for lower tax rates.

"I think that's a difficult question to answer," Mount told reporters after Camp and Baucus left Mrs. G's. "The deductions that businesses are able to take are deductions that is their cost of doing businesses. They're directly related to how they generate their revenue."

Bill Decker, president and co-founder of The Hub, also found the question difficult to answer. "I don't know what those things might be -- like what the keepers or throwers might be -- but . . . I see no reason for keeping something that's dead weight and may only benefit a small group," he said.

However, it was much easier for Mount and Decker to identify tax expenditures that should be kept in the code. "Interest expense we would not give up only because it's the cost of doing business from a money, cash flow perspective," Mount said.

She added that Mrs. G's wouldn't want to give up the accelerated depreciation provision but "would relish simplification of depreciation rules." She said the section 179 expensing deductions should be expanded to make it easier for small businesses to get an immediate return on their investments.

Camp in his discussion draft on passthrough taxation proposed making section 179 expensing permanent.

Schaeffer said the mortgage interest deduction is something she'd like to see stay in the code. "That encourages people buying homes and that brings them in here to renovate," she said.

During the visit, Baucus asked if Mrs. G's uses the last-in, first-out method of accounting. Mount said the business does not because "it's a complexity that doesn't bear any fruit." Mrs. G's uses the average cost accounting method, she said.

Both businesses, each of which has about 40 employees, also discussed the challenges the tax code creates as they compete with large corporations.

Schaeffer, who has eight competitors located within a half mile of her store, said she would like small businesses to be taxed at the same rate as corporations. "To lower the tax rate is definitely going to be a way for us to do more business, generate more cash, and invest more back into our business," she said.

Decker said the tax code does not provide a level playing field for small businesses and corporations. "They have cheaper capital and they can carry forward losses," he said of businesses that are formed as corporations. "And they use [limited liability companies] as their primary mechanisms for doing business below the corporate level. . . . I'm not saying they are evil for doing that. They're doing what the law allows them to do."

Agreeing with the overall theme of simplification, Decker said he doesn't mind that Camp and Baucus have not been specific about their plans for reform. "I respect that they're taking a slow and deliberative approach to asking a lot of questions and talking to a lot of people," he said.

Decker's partner John New, The Hub's CEO and co-founder, said small businesses' tax returns do not reflect the real economics of their business, often making it difficult for them to get the capital they need to grow.

Although the focus of the discussion was small business taxation, a reporter took the opportunity to ask Camp whether he would look at a financial transactions tax as a part of reform. "I'm not going to rule out anything at this point, but it is not something that I am actively looking at," Camp said.

Follow Lindsey McPherson (@lindsemcpherson) on Twitter for real-time updates.

Additional documents

  • Release from House Ways and Means Committee Chair Dave Camp, R-Mich., and Senate Finance Committee Chair Max Baucus, D-Mont.
  • Release from Finance Committee member Patrick J. Toomey, R-Pa.
  • National Retail Federation release
  • American Petroleum Institute release
  • Business Roundtable release


About Tax Analysts

Tax Analysts is an influential provider of tax news and analysis for the global community. Over 150,000 tax professionals in law and accounting firms, corporations, and government agencies rely on Tax Analysts' federal, state, and international content daily. Key products include Tax Notes, Tax Notes Today, State Tax Notes, State Tax Today, Tax Notes International, and Worldwide Tax Daily. Founded in 1970 as a nonprofit organization, Tax Analysts has the industry's largest tax-dedicated correspondent staff, with more than 250 domestic and international correspondents. For more information, visit our home page.

For reprint permission or other information, contact communications@tax.org