Small Business

Entrepreneurs Escape Many Taxes, and That's Unlikely To Change

Americans don't want to see the screws applied to small businesses


There's a way for Congress to lower the federal budget deficit to less than $1 trillion, maintain the Bush tax cuts for everyone, and abstain from making a single dollar of spending cuts. While this sounds like the kind of have-your-cake-and-eat-it-too solution our elected officials fantasize about, no one in Congress is suggesting it, nor are they likely to anytime soon. That's because the solution requires getting small business owners to stop underpaying their taxes.

Before you ask why I'm discussing such a political nonstarter, know that small business underpayments add up. The IRS estimates that $179 billion annually in unpaid federal taxes comes from individuals underreporting business income on their personal returns from what are known as pass-through entities and underpayment of self-employment tax. We could eliminate 16 percent of the budget deficit if this subset of American taxpayers paid all the taxes they owe.