Billion Dollar Blind Spot - How the U.S. Tax Code's Small Business Expenditures Impact Women Business Owners

Abstract

This latest report from the Kogod Tax Policy Center, in keeping with our mission to conduct nonpartisan policy research on tax issues specific to small businesses, provides an assessment of how the U.S. tax code’s more than $255 billion of 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 now total more than 11 million (or 38% 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 small business tax expenditures we assessed are so limited in design that they either (i) explicitly exclude service firms, and by extension, the majority of women-owned firms (Sec. 1202); or (ii) could effectively bypass women-owned firms who are not incorporated or who are service firms with few capital-intensive equipment investments altogether (Secs. 1244 and 179). • Our survey data of 515 experienced, engaged women business owners corroborates these findings, and nevertheless suggests that when women-owned firms can take advantage of tax breaks, they do. However, neither Congress nor Treasury or IRS or SBA has ever measured how the tax code impacts women business owners. • For example, we identified only three women business owners who had ever used Section 1202 - a $6 billion tax break - to raise capital for their firms. While we expect that more than three women-owned firms have used this provision since 1993, we don't have publicly-available taxpayer data to prove it. This ridiculous example highlights why we need tax research on women business owners. Similarly, our survey found that women business owners use Section 179 at significantly lower rates than existing government research finds for businesses generally. This tax break is one of the most expensive (it will cost $248 billion from 2016-2020), and yet we don’t have any research on how it benefits women business owners. • Our findings raise questions as to (i) whether the tax code’s small business tax expenditures are operating as Congress intended for these small businesses; and (ii) whether the cost of these expenditures has been accounted for in terms of their uptake by women-owned firms. In 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 data or research to make evidence-based tax policy decisions with respect to women business owners. Our research finds, among other things, that the tax-writing committees have yet to hold hearings specifically to address tax challenges women business owners encounter. Ultimately, this report recommends strategies for developing this research including: 1. Requesting the Congressional tax-writing committees hold hearings on the issues identified in the report; 2. Requesting the Joint Committee on Taxation develop estimates on how small business expenditures impact women-owned firms; 3. Requesting the federal Commission on Evidence-Based Policymaking develop strategies for developing the data we need to measure these expenditures in terms of women-business owners; and 4. Requesting the nomination and confirmation of a new Director of the Census Bureau.