As much as I enjoy myth-busting, there is one bit of Congressional lore that I would have a difficult time refuting: tax-writing Congressional committees under Democrats are not friendly to small businesses. House Small Business Committee Chairwoman Nydia Velázquez (D-NY) has openly said that the Ways and Means Committee was not particularly friendly to small businesses — particularly her beleaguered colleague and fellow New Yorker, Committee Chairman Charlie Rangel (D-NY). Meanwhile, in the Senate, Finance Committee Chairman Max Baucus (D-MT) can usually be counted on to strip small business tax goodies out of legislative proposals first and one of his top strategies for addressing the budget deficit seems to be riding the backs of sole proprietors all the way to the end of the tax gap.

By now, you should know what the tax gap is. That is the difference between the amount of money the Internal Revenue Service believes it should collect for a given year and the amount it actually does collect. One of the oft-cited statistics with which hostile Congressional tax writers beat sole proprietors over the head is that they are 57% of the taxpayers responsible for the tax gap. Few mention that they are only responsible for 23% of the money. In any event, the IRS estimates a walloping seven of ten sole proprietorship tax returns that report losses at all are partially or fully noncompliant. Such an epidemic would seem to suggest a problem with form instructions or that taxpayer education is sorely needed. GAO recommends the IRS review its data to determine the extent to which those taxpayers erroneously claim losses relating to hobbies, which are not deductible. The IRS has agreed to implement GAO’s recommendation. It appears that Chairman Baucus will have to be satisfied with that … at least, for now.