What Must Be Fixed In Pennsylvania To Save Small Business

Date: May 07, 2015

Today the state House Majority Policy Committee held
a hearing in Lancaster to discuss challenges facing Pennsylvania’s economy and
business climate as part of a statewide jobs tour.  NFIB/PA Legislative Director Neal Lesher
testified at that hearing on behalf of NFIB’s 15,000 Pennsylvania members. The
hearing covered state taxes and regulations, how to improve the state’s
business climate, the preparedness of Pennsylvania graduates to fill in-demand
jobs and how to attract new business to the area.  NFIB member Wenger Feeds CEO Geoff Finch also
testified at the hearing.

Here is the testimony by Neal Lesher of NFIB:

PENNSYLVANIA

May 7, 2015

Chairman Benninghoff and members of
the committee, thank you for the opportunity to testify today.  My name is Neal Lesher and I am the
Legislative Director for the National Federation of Independent Business (NFIB)
in Pennsylvania.

The NFIB is Pennsylvania’s leading
small business organization representing nearly 15,000 small- and independent
businesses in the Commonwealth and roughly 350,000 nationwide.

NFIB members represent virtually
every sector in Pennsylvania’s economy. 
A typical NFIB member employs five or fewer workers and generates gross
sales of $400,000 per year. 

Small employers make up an enormous
segment of Pennsylvania’s business community. 
Nearly 98 percent of businesses employ 100 of fewer workers.  Just like NFIB’s membership, most small employers
are organized as sole proprietors, partnerships, sub-chapter-S corporations or
Limited Liability Companies (LLCs). Businesses organized in this fashion report
their business income and pay business taxes through their personal returns. 

Despite their importance to the
economy, small businesses are heavily burdened by the costs of government
regulation and excessive paperwork. Because of their size, small businesses are
particularly sensitive to changes and uncertainty in the tax code. 

The cost of compliance for small
firms is much higher for these firms then their larger counterparts in the
business community.  The cost of tax
paperwork is the most expensive paperwork burden that government imposes on
small business owners – on average $74 per hour in tax preparation and
compliance costs. For every dollar in state sales tax that a small business
owner collects and remits — it costs the thirteen cents in bookkeeping and
compliance.

As this committee examines options
to make Pennsylvania more business friendly, the NFIB respectfully offers the
following recommendations:

Control state
spending
.  Nearly all Pennsylvania
small business owners report their business taxes on their personal returns.
That’s why personal income tax rate increases are so devastating to small
business. NFIB members support legislation and Constitutional amendments to
limit spending and make it harder to raise taxes.

Reform pension
systems
.  Pennsylvania’s public
pension deficit is the single-greatest financial threat facing the
commonwealth, school districts and ultimately taxpayers.  Meaningful pension reform must significantly
reduce the risk taxpayers have been exposed to and produce savings. 

Eliminate the Capitol Stock and Franchise Tax (CSFT).  The CSFT essentially is a property tax that
is assessed whether or not a company is profitable.  The tax was originally scheduled to be phased
out by 2009 because lawmakers recognized the tax as an impediment to growth.

Simplify the tax code and compliance process.  There are countless instances where
employers, tax preparers and payroll service providers must make multiple
filings of the same information. These inefficiencies raise administrative
costs – especially for small business.

Enact small business tax reform
A package of bills has been proposed to remove unfair tax obstacles
facing small business to allow them to compete and grow their businesses.  This package includes:

Like-kind
exchanges.
  This legislation would
allow for tax-deferral when property is exchanged for similar property.  This rule is currently allowed under Federal
tax law and in all 49 other states.

– Increased expense deductions.  Section 179 of the
IRS tax code allows businesses to deduct the full price of qualifying equipment
purchased during the tax year.  For the
last four years, the deduction limit has been $500,000.  Under Pennsylvania law, while the allowable
deduction for C-corporations is tied to the federal limit, businesses filing
under the Personal Income Tax (PIT) are limited to $25,000.  This legislation would increase the limit
under the PIT to $100,000 per taxable year and increase the phase-out of this
deduction from the current $200,000 to the federal amount of $2,000,000.

– Net operating loss.  This legislation
would allow small businesses to take a net loss from other sources of
income.  For example:  If an owner sells some personal items to help
the business make payroll, the owner could take the business loss against the
tax bill created by selling personal items.

Privatize liquor
sales
.  Eighty percent of NFIB
members support the transfer of both the wholesale distribution and retail sale
of wine and spirits to private enterprise. 
We look forward to working with lawmakers to finally pass a proposal
that enables small-business ownership, promotes lower prices, and provides for
greater selection for consumers. 


Curb frivolous lawsuits.
The cost
for a business owner to defend a lawsuit can run as much as $100,000. The cost
to defend even one lawsuit can force a typical small business owner into
bankruptcy. A common sense lawsuit abuse reform package should prohibit venue
shopping; make legal proceedings transparent to prevent personal injury lawyers
form collecting double recoveries from a small business for the same injury;
include reasonable protections for manufacturers and innocent sellers of
products; provide improvements to Pennsylvania‘s medical liability climate; and
place fair limitations on non-economic damages, to name a few.

Repeal union
bullying exemptions
.  Union members
involved in labor disputes are not subject to the law on stalking, harassment,
and threatening the use of weapons of mass destruction.  Having a free pass can lead to an escalation
of lawlessness when what starts out as harassment, stalking, or threats too
often ends up in violence and destruction of property.  Lawmakers should eliminate the exemptions in
the criminal code.

Preempt local paid
leave ordinances
.  There is an effort
in Philadelphia to enact a local paid leave mandate which would apply to
business with as few as five employees. 
Allowing local governments to enact such mandates will create an uneven
playing field for businesses, create complexities for businesses with more than
one location, and make it more difficult to hire new workers.  Ultimately, NFIB believes that small-business
owners are best suited to make these decisions for their business.

— Enact consistent, competitive labor laws. NFIB members support reforms that help keep
Pennsylvanians working, reduce costs, curtail fraud and are consistent and
competitive with other states.

— Enact procurement reform.  Promote procurement reform
that creates a level playing field so small businesses can compete with large corporations
for state business.

 

— Stop government mandates.  Stop mandates on small
businesses, such as mandatory paid leave and a higher minimum wage.

 

On behalf of the small business men
and women of the NFIB, I thank you for allowing me the chance to appear before
the committee to offer a few recommendations to improve the state jobs climate
and the environment for small business.

 

                                   

 

 

 

 

 

 

 

 

 

 

 

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