Is The Tax Windmill Tilting Slightly

November 8, 2002
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GRAND RAPIDS — Mention Paul Hense to most of his fellow CPAs in town and you invariably get a chuckle and a shake of the head.

In fact, Hense chuckles and shakes his head at himself for the same reason — namely, that the U.S. Tax Code personally and professionally offends him and he is violently and often hilariously outspoken about it.

But suddenly, Hense says, some Washington VIPs are beginning to hear and be shocked by some of the facts he has reported for years about how the tax code discriminates against small businesses.

Last Thursday, he spent an hour discussing the subject in a conference call with the majority staff director for the House Ways and Means Committee. Last month the committee's staff itself interviewed him in connection with the same issue.

"They told me that normally, the only people they talk to come to them with a check and a demand," Hense said. "Instead, they're getting ideas from us like they've never received before."

"Us," he said, is National Small Business United, the country's oldest small business lobby. Hense is its treasurer and chairs its tax committee.

Earlier this year NSBU commissioned a Washington law firm to analyze the U.S. Tax Code's disparities concerning small and large businesses. "Apparently nobody ever had taken this approach before, which is terminally weird," Hense said.

The document — called The Internal Revenue Code: Unequal Treatment Between Large and Small Firms — is available on the Web at www.nsbu.org

Hense said the report shows federal tax policy imposes upon small firms many costs that it allows corporations to avoid. Moreover, the report found that the code makes it almost impossible for small businesses to offer competitive fringe benefits either to employees or owners.

He said the code has other far-reaching implications that are starting to dawn upon a bipartisan cross-section of policy makers on Capitol Hill.

Hense told of delivering a copy to a congresswoman from Brooklyn, a member of the House Small Business Committee. "You should have seen her face when I told her that my professional advice to a welfare mother would be not to go into business for herself.

"I told her my advice would be: 'Lady, don't do it, because you'll lose Medicaid coverage for your kids. And as a small business owner, you won't be able to afford health insurance. The IRS taxes those premiums."

He said the congresswoman — Nydia Velesquez, the first Puerto Rican to serve on the New York City Council and the first to be elected to Congress — ordered copies of the report to be delivered to every member of Congress with a so-called "Dear Colleague" cover letter.

"She saw that this crosses party lines," Hense said. "This isn't a rich people issue, it's a poor people issue. These tax inequalities don't hurt millionaires, but they hurt people in the zero to $60,000 income range.

"I could care less about the rich," he said. "To them, taxes might mean the difference between owning a Jaguar and a Rolls-Royce. But to people making between $30,000 and $60,000 a year in a small business, it's another matter entirely."

He said the report caused the Treasury Department's assistant secretary for tax policy to request a meeting with him and members of her staff in September.

"I explained to her how a teacher and most government workers can retire at 52 and be guaranteed — absolutely guaranteed — $25,000 to $30,000 for the rest of their lives," Hense said. "Hurricane, tornados, volcanoes, no matter what, unless the government's dissolved, you get your retirement."

"Then I asked, 'How much money would a small businessman making $60,000 a year have to set aside to absolutely guarantee $30,000 a year for life, plus never spend a dime on medical care?'

"I told her, 'If you've been making $60,000 a year for 20 years, you cannot reach what a government employee can retire on. The government will not let you get there.' That got her attention."

Since then, Hense said, he has learned that Ways and Means is planning to mark up the report's provisions, an analysis of a proposed bill's costs.

"They don't even talk about that unless they're serious," he said.    

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