SBA report says business deductions are crucial to economy
A new report by the Small Business Administration Office of Advocacy finds that eliminating the business deductions in the tax codes often called loopholes would not bring in as much revenue as often stated, and could cause unintended economic disruption.
The deduction, known as tax expenditures, do not involve direct federal outlays, the report says. Rather, they take the form of special credits, exemptions, deductions, exclusions and preferential rates.
The largest tax expenditures used by all businesses account for an estimated $161 billion. Small businesses use about $25 billion of that. Some provisions in this category are retirement plans, depreciation of equipment and LIFO. LIFO, an important tax provision for dealers, makes up only 2 percent of the largest tax expenditures.
Although recent discussions of tax reform have focused on repealing most tax expenditures, the report says, most of them 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.
In addition, the SBA report says that removing the tax expenditures would not increase revenue as much as is often stated.
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