Critique of the Corporate Transparency Act

Washington often brands policies with promising names, yet their effects can be misleading. For instance, the Inflation Reduction Act was a substantial $2 trillion tax and spend initiative labeled as a way to tackle inflation. Similarly, the Affordable Care Act increased healthcare regulation, which reduced competition and inadvertently raised costs. The Patriot Act, under the guise of protecting Americans, expanded federal surveillance powers.

Another such law is the Corporate Transparency Act. It was introduced to fight financial crime but imposes extensive reporting requirements on small businesses. The name implies that it demands large corporations to disclose more about their operations or ownership, especially when these are used to mask criminal activities. However, the reality is starkly different. Large companies avoid these requirements, and small business owners, including volunteer presidents of neighborhood associations, must submit personal data to the government under threat of severe penalties.

The Corporate Transparency Act reflects a common problem in Washington, where success is gauged by the amount of government action rather than its outcomes. Former President Ronald Reagan once said, “The nine most terrifying words in the English language are ‘I’m from the government, and I’m here to help.’” When issues arise, the typical response is to increase spending and paperwork, giving politicians a visible action to point towards.

The anti-money laundering system is a prime example. The Financial Crimes Enforcement Network (FinCEN) receives millions of suspicious activity and currency transaction reports annually. However, the Government Accountability Office reported that law enforcement reviews just 5.4 percent of these reports. Despite exhaustive reporting, only about 1 percent of laundered funds are intercepted.

The Biden administration’s implementation of the Corporate Transparency Act treated millions of small-business owners as potential criminals, solely based on their business ownership. They had to keep sensitive information current with FinCEN, even in the absence of any wrongdoing. For small businesses and homeowner associations, this imposed an additional federal compliance burden.

Ideally, the government requires proof of wrongdoing before demanding private information from citizens. During President Trump’s tenure, the Treasury Department protected businesses from this reporting regime. Yet, the executive branch cannot annul laws made by Congress. The Corporate Transparency Act remains, allowing future administrations to reinstate these demands.

Congress has a remedy. The Repealing Big Brother Overreach Act proposes to eliminate the Corporate Transparency Act permanently. Supported by 193 House co-sponsors and endorsed by the National Federation of Independent Business, this bill has significant backing. Though it was not included in the House’s National Defense Authorization Act, there’s still time to integrate it into the final legislation.

Small-business owners should focus on serving customers and expanding their businesses, not on the potential need for compliance with invasive reporting requirements. President Trump temporarily shielded small businesses from unnecessary disclosures. Congress has the responsibility to ensure this protection is permanent by repealing the Corporate Transparency Act.

Warren Davidson, a member of the House Financial Services Committee, represents Ohio’s 8th District in Congress.