Businesses: $1 of every $3 goes to compliance, regulations
During the fiscal cliff debates, the American public was inundated with tax percentage figures. For simplicity’s sake, there were two schools of thought with the tax rates. The first was to raise taxes to enable the government to do more to help grow jobs. The other was to lower taxes so businesses would have more revenue in their pockets to help grow the economy. Unfortunately, one of the biggest factors hindering businesses isn’t the tax rate — it’s our convoluted tax code.
The Brenner Brief spoke with Dan Chatfield who has worked for over 12 years at one of the top payroll management companies in the country. His primary clientele are small/mid-size businesses with 50-250 employees. Chatfield pointed out that, “These are the businesses that get hurt the most by our tax code and regulations.” Noting, “They fall into a hole where they are too large to effectively manage their own taxes and payroll, and too small to have a full-time staff enabling them to stay in compliance.”
As a result, nearly 74% of small businesses are forced to outsource at least some part of their payroll to a company like Chatfield’s. When asked how much this costs a business, he replied, “About the same cost as another full-time, mid-level employee.” Adding, “You could try and do it yourself or choose to hire a person instead of outsourcing, but you’re not going to be as efficient or effective.”
He’s not kidding. A study by Automatic Data Processing (ADP) in 2012 found that 33 percent of mid-sized businesses incurred some penalty for non-compliance with government regulations. Worse yet, those that chose to manage their own payroll “in-house” received about three times the fines or penalties than businesses outsourcing their payroll. Additionally, IRS reports show 40 percent of small businesses pay an average penalty of $845 per year for late or incorrect filings and payments.
Businesses not only lose money from paying penalties, they lose money by not being aware of all the credits available to them. Chatfield added, “Our tax code puts the onus on you to find credits. When the IRS audits you, they only look for where you weren’t in compliance, they aren’t going to tell you when you are missing out on a benefit you eligible for.”
One of the ironies is how many of the stimulus efforts actually hinder businesses. As an example, Chatfield pointed to the two percent social security tax deduction and the recent increase. In his words, “This may not seem like a big deal, but it was similar to the whole Y2K debacle where all of these programs had been written to match the rate and a whole bunch of other pieces relied on that, so entire portions of the software had to be re-written, tested, then rolled out.”
If this is what the left means by government creating jobs, count me out. I can’t think of a worse way to go about creating jobs than to do so through increasing burdens on our nation’s innovators. Furthermore, how many people are opting to stay on the sidelines out of fear over this regulatory nightmare?
When the fiscal cliff talks ended, both sides mentioned how great it will be now that businesses will have stability with respect to the tax rates. However, with one out of every three dollars going toward compliance with federal regulations, one can see there is a lot more that needs to be done.
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