Vice President Kamala Harris wants us to believe she’s “passionate” about small businesses, but there’s little evidence of that. While her proposal to increase deductions for business startups is marginally helpful, it would be completely overwhelmed by the massive tax hikes and increased regulatory burdens that make up the bulk of her agenda.
As just one example, the Financial Crimes Enforcement Network, or FinCEN, under her oversight continues to move forward with implementing the onerous Corporate Transparency Act. This new regime subjects millions of small businesses and other legal entities to invasive reporting requirements that are due by the end of the year.
The ostensible purpose of the CTA is to slow the ability of criminals to use legal entities such as corporations and LLCs to launder money to finance illicit activities. But the bad guys are not going to self-report their crimes, and the significant fines and jail time accompanying noncompliance are threatening to law-abiding business owners only. What does a serious criminal care about a paperwork violation?
Meanwhile, most of those law-abiding business owners are wholly unaware of the CTA, and even fewer have filed the necessary reports. Less than 1 of 8 covered entities has filed to date, according to new data from FinCEN.
Some states are in worse shape than others. Only 5% of covered businesses in Ohio have filed, for example. That is less than half the 13% of California businesses that are complying but more than the paltry 4% in Pennsylvania. FinCEN predicts that 32 million existing businesses and 5 million new ones will have to file nationally this year, so we are in danger of having tens of millions of noncompliant business owners by the new year.
That’s a big problem since the failure to file is a felony. You read that right. Under the passionate leadership of Harris, the federal government is moving forward on a policy that will turn millions of small business owners into felons by the end of the year.
So, the CTA will fail to catch any criminals even as it turns millions of lawful business owners into felons.
What’s the solution? One possible avenue of relief is the courts, in which seven separate lawsuits challenge the validity of the CTA under the Constitution. It’s hard to imagine the authors of that document thinking the CTA is a good idea. The most advanced of these cases just had oral arguments in the 11th Circuit Court on Friday, so relief is possible in the coming months.
Meanwhile, multiple legislative efforts are moving to delay reporting by a year, both to give the courts time to work and to give business owners time to learn about their new obligations. One bill, authored by Rep. Zach Nunn (R-IA), passed the House 420-1 last year, but Senate Banking Committee Chairman Sherrod Brown (D-OH) has it bottled up in the Senate. Apparently, he’s another politician who is “passionate” about small businesses.
Which brings us back to candidate Harris and her current job as vice president. She should encourage FinCEN to delay implementation. It’s not as if FinCEN lacks cause to slow the process down. The successful legal challenge at the district-court level in Alabama resulted in significant confusion about the status of the law when it ruled that the CTA was unconstitutional but offered relief to only a narrow band of businesses.
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Meanwhile, FinCEN is tracking the rate of compliance closely and meeting with business owners and groups to educate them on the new rules, so they are fully aware of the regulatory train wreck coming at the end of the year.
If the vice president really were passionate about the interests of small businesses, she would ask FinCEN to suspend the filing deadline pending the resolution of these court cases and further action by Congress. That’s what a real advocate of small business would do, but based on four years of nonaction, we’re not holding our breath.
Brian Reardon is the president of the S Corporation Association.