Women Business Owners Are Missing Out on Billions -- How Congress Can Change That
Free Book Preview Tax and Legal Playbook
Before the bottom fell out of the economy in 2008, Cincinnati businesswoman Anne Chambers had been running a successful test market for an edamame snack brand. It was an on-trend business idea, and she had distribution deals lined up with Kroger and other companies. But she needed money to scale up.
Despite her solid business plan and the decades of experience and good market results Chambers offered, neither banks nor investors would give her capital. Her idea -- which has since made a fortune for others--died for lack of investment.
Unfortunately, Chambers' story is not unique. In 2016, less than 5 percent of investor money went to women-led businesses, according to data from M&A. True, the tax code includes provisions to help owners raise capital for their burgeoning businesses. Yet those provisions are doing little to help women business owners, who now represent more than a third of all U.S. firms.
This must change. And now there's an opportunity for that to happen: For the first time in 30 years, Congress is looking seriously at revamping the tax code, which means we have a once-in-a-generation chance to transform the code into a tool that empowers women entrepreneurs. The question is, will Congress seize this opportunity?
A new report by Caroline Bruckner of American University's Kogod Tax Policy Center and the national advocacy organization Women Impacting Public Policy (WPP) that I lead found that women business owners can't take full advantage of more than $255 billion in tax incentives because of how they are legally organized and the industries they serve.
For the report Billion Dollar Blind Spot: How the U.S. Tax Code's Small Business Expenditures Impact Women Business Owners, researchers surveyed 515 women business owners across the country to determine how they use key small-business tax provisions. In fact, fully 84 percent of these survey subjects operate businesses in service industries excluded from provisions designed to stimulate small business growth, access to capital and investment.
Other obstacles outlined in the report included:
- Only 12 percent of respondents organize their businesses as C-corporations; that means that 88 percent are excluded from significant small-business tax incentives.
- Only 0.6 percent of women surveyed reported being able to attract capital for their businesses from non-corporate investors by using a provision in the code that allows them to issue qualified small business stock.
- Some 53 percent of respondents said they didn't fully benefit from Section 179, a provision allowing businesses to deduct equipment purchased and placed into service. Possible reasons: They either don't know about the provision or don't buy the kind of equipment that qualifies under the provision.
- Some 86 percent of respondents said they'd never claimed a tax loss, under a provision that permits an ordinary loss on the sale or exchange of qualified business stock.
What's more, the research found a complete lack of government analysis about the effects of tax expenditures on women-owned firms. This situation raises real questions about whether the tax code's small business tax expenditures are operating as Congress intended: Clearly, policymakers have a billion-dollar blind spot when it comes to understanding how effective such expenditures are with respect to women-owned firms.
Correcting this inherent inequity carries the potential to dramatically impact the economy. The percentage of firms owned by women has skyrocketed from 4.6 percent in 1976 -- the first time the Census released a report on women's business ownership -- to 36 percent today. There are 10 million women-owned businesses, and they employ 9 million people and contribute an estimated $1.6 trillion to the economy.
Clearly, women entrepreneurs' economic might is significant and growing. But they could accomplish even more if the tax code created stronger investment opportunities -- something WIPP member Anne Chambers knows first-hand.
"How many more women would have gone into business for themselves rather than working for someone else?" she told us. She said that her query sprang from her question as to whether, if the tax code were to offer more opportunities for people to invest in women owners, even more women-owned businesses would exist today.
"We'll never know how many more jobs could have been created by women who couldn't open businesses or expand them," Chambers said.
There is much talk by this administration and Republican lawmakers about a revamping of the tax code. If that happens, Congress must use tax reform to harness the economic energy generated by women like Anne Chambers. Our workers, our communities and our country's economy will all be stronger for it.