Senate Democrats

H.R. 5297, the Small Business Jobs and Credit Act of 2010

UPDATE

July 28, 2010

On July 28, 2010, the Senate resumed consideration of the Small Business Jobs bill.  H.R. 5297, the Small Business Lending Fund Act of 2010 was originally introduced in the House on May 13, 2010.  On June 17, 2010, the House passed H.R. 5297 by a vote of 241 – 182.

The legislation was received in the Senate on June 18, 2010, and a cloture motion on the motion to proceed to the bill was invoked on June 29, 2010 by a vote of 66-33.  Per a previous agreement, all post-cloture debate time was yielded back and the motion was agreed to.  Senator Reid, for Senators Baucus and Landrieu, then offered the Substitute Amendment (S.A. 4402), the Small Business Jobs of 2010.  Senator Reid then filled the amendment tree.  S.A. 4402, which is described in detail in the original legislative bulletin, was considered in the Senate on July 19 and July 21. 

On July 21, the pending amendments and motion to H.R. 5297 were subsequently withdrawn by Unanimous Consent.  Senator Reid, for Senator Baucus, then offered S.A. 4499, a revised Substitute amendment, with the LeMieux-Landrieu amendment (S.A. 4500) as an amendment to S.A. 4499.  Senator Reid filled the amendment tree and filed cloture on the LeMieux-Landrieu amendment; the revised Substitute; and the underlying bill, H.R. 5297.

The Federal Small Business Lending Fund that had been in S.A. 4402 was struck from the revised Substitute and reintroduced as the LeMieux-Landrieu amendment (S.A. 4500).  The revised Substitute made additional changes to S.A. 4402, including provisions that would:

  • Increase by $600 million the amount provided to States for grants to support small business lending programs;
  • Extend the American Recovery and Reinvestment Act small business lending program that eliminates the fees normally charged for loans through the SBA 7(a) and 504 loan programs and increases the government guarantees on 7(a) loans from 75 percent to 90 percent;
  • “Delist” cell phones so their cost can be deducted or depreciated like other business property, without onerous recordkeeping requirements;
  • Allow holders of nonqualified annuities (that is, annuity contracts held outside of a tax-qualified retirement plan or IRA) to elect to receive a portion of the contract in the form of a stream of annuity contracts, leaving the remainder of the contract to accumulate income on a tax-deferred basis;
  • Clarify source rules on guarantees, providing that amounts received directly or indirectly for guarantees of indebtedness of the payor issued after the date of enactment will be sourced like interest and, as a result, if paid by U.S. taxpayers to foreign persons will generally be subject to withholding tax.  No inference was intended with respect to the treatment of guarantees issued before the date of enactment;
  • Remove a provision that would clarify the application of IRS’s bad check penalty – a provision that was enacted in H.R.5263, the Homebuyer Assistance and Improvement Act of 2010 (P.L. 111-198); and
  • Clarify that Treasury’s continuous levy authority on government payments to Federal contractors who owe back taxes to the IRS applies to amounts paid for property, as well as to payments for goods and services.

The revised Substitute (S.A. 4499) and the LeMieux-Landrieu Amendment (S.A. 4500)  were considered on July 22.  Cloture on the LeMieux-Landrieu Amendment was invoked on July 22, 2010, by a vote of 60 – 37. 

By unanimous consent on July 27, 2010, Senator Reid withdrew all pending amendments and cloture motions to H.R.5297.  He then offered a new, consolidated Substitute, the Baucus-Landrieu Substitute Amendment (S.A. 4519), and filed cloture on both it and the underlying bill.  Senator Reid did not fill the amendment tree. 

The new consolidated Substitute incorporates the original language from S.A. 4402 (it re-inserts the LeMieux-Landrieu language on the Federal Small Business Lending Fund), adds Senator Lincoln’s Agriculture Disaster Relief language, retains the other changes made with S.A. 4499 (which are outlined above), and makes the following additional changes:

  • Elimination of Advanced EITC. Presently, low- and moderate-income individuals may qualify for a refundable earned income tax credit (EITC).  Individuals have the option of requesting advanced payments of the EITC throughout the year by having their payments of withheld income reduced by their employer.  The advanced EITC payment option, however, is not popular and only about three percent of eligible EITC recipients choose this option.  The Baucus-Landrieu Substitute eliminates the advanced EITC payment option.  The provision is estimated to raise $1.131 billion over 10 years.

  • Addition of Small Business Lending Fund. The Baucus-Landrieu Substitute authorizes the creation of the Small Business Lending Fund to provide Treasury with the ability to purchase preferred stock and other debt instruments from eligible financial institutions with less than $10 billion in total assets. Eligible institutions include insured depositories, bank and savings and loan holding companies, and certain community development loan funds.  Eligible institutions with less than $1 billion in total assets can apply to receive investments of up to five percent of their risk-weighted assets.  Eligible institutions between $1 billion and $10 billion in total assets can receive investments of up to three percent of risk-weighted assets.  Participating institutions will pay a five percent dividend rate on the preferred stock, but this rate can be reduced to as low as one percent if a bank demonstrates a 10 percent increase in small business lending relative to a baseline set using the four quarters prior to enactment.  The dividend rate is increased to seven percent after two years, if the bank does not increase its small business lending.  To encourage timely repayment, the rate increases to nine percent after four and a half years.  Treasury’s authority to make capital investments under the program is terminated one year after the date of enactment.  This provision is estimated to raise $1.1 billion over ten years.

  • Addition of the Export Promotion Act. The Baucus-Landrieu Substitute would assist U.S. small and mid-sized businesses that are looking to export their products but do not have the resources or know-how to find new international customers.  First, it increases the activities and staffing of the Department of Commerce in carrying out its mission to promote U.S. exports.  Second, it authorizes increased funding for export grants available to industry associations and non-profit institutions.  Finally, the amendment requires that decisions to fund manufacturing and innovation grants include exporting potential as one of the application considerations.  Based on estimates provided by the Department of Commerce, this legislation is projected to create over 43,000 jobs once the funds are appropriated.  This change has no cost associated with it.

  • Addition of Agriculture Disaster Relief. The Baucus-Landrieu Substitute would provide assistance for 2009 agricultural losses for crops, including specialty crops, livestock, sugar, aquaculture, cottonseed, and poultry.  In addition to approximately $1 billion in supplemental direct payments to producers with a minimum five percent loss in production, the bill would provide $42 million in cottonseed assistance, $25 million in aquaculture assistance, $21 million to a Hawaiian sugar cane cooperative, $75 million to poultry producers, $50 million for livestock producers, and $300 million for specialty crop producers.  The program is designed for payments to be issued quickly through USDA and State block grants.  States may continue to receive Conservation Reserve Program payments for the purposes of school funding.  This provision is estimated to cost $1.479 billion over ten years.

  • Addition of a Provision to Reallocate Future Spending. The Baucus-Landrieu Substitute reallocates $500 million of future spending allotted in the Recovery Act and returns Supplemental Nutrition Assistance Program (SNAP), or food stamps, benefits to the levels that individuals would have received in 2017 under pre-Recovery Act law, effective August 31, 2017.  This modification reduces the cost of the bill by $500 million over ten years.

  • Use of Predictive Modeling and Other Analytics Technologies to Identify and Prevent Waste, Fraud and Abuse in the Medicare Fee-for Service Program. The Baucus-Landrieu Substitute would require the Secretary to contract with private companies to conduct predictive modeling and other analytics technologies to identify and prevent payment of improper claims submitted under Parts A and B of Medicare.  The Secretary would be required to identify the ten states that have the highest risk of waste, fraud and abuse in the Medicare program, and for one year, predictive modeling and other analytics technologies would be used to identify and stop fraudulent claims in these states.  After this initial year, the Inspector General of the Department of HHS (HHS OIG) would report to Congress on the actual savings to the Medicare fee-for-service during the preceding year, projected future savings to the program as a result of the use of these technologies, and the return on investments as a result of the predictive analytics technologies.  The Secretary would be required to report to Congress on the effect, if any, the technologies have on Medicare beneficiaries and providers.  If the HHS OIG certifies more than nominal savings from the use of the technology, its use would be expanded to ten additional states for another year.  After the second year of use, the Secretary and the HHS OIG, would conduct a second analysis and certification.  If this analysis and certification are positive, the technologies would be expanded to the Medicare fee-for-service program in every state for an additional year.  Finally, after that additional year, a third analysis would be conducted, and if positive, the Secretary would expand the use of the technologies to Medicaid and the Children’s Health Insurance Program (CHIP).  If during any evaluation and certification, the HHS OIG does not certify savings, a moratorium would be imposed on the expansion of the technologies for one year.  This change increases the cost of the bill by $930 million over ten years.

Summary

While the economy is starting to grow and recover from the worst financial and economic crisis since the Great Depression, real economic recovery is not possible without long-lasting, meaningful job creation.  That’s why Senate Democrats are committed to putting America back to work and strengthening our economy.  As a part of our year-long, multi-bill jobs agenda, Senate Democrats passed the bipartisan HIRE Act (H.R.2847, as amended) and the Travel Promotion Act (H.R.1299, as amended) earlier this year.  These two bills have the potential to create and save over a million jobs, strengthen American businesses, and boost our economy.  In fact, May 2010 marked the fifth consecutive month of job growth.  Since the beginning of 2010, the American economy has created more than half a million jobs.

But with 15 million out-of-work Americans, and a national unemployment rate still near 10 percent, there is still work to do.  In America, the private sector is the backbone of innovation and job creation.  And within the private sector, small businesses are the principal engine of job creation.  Over the past 15 years, small businesses have generated 12 million new jobs – two-thirds of all new jobs.  But the Great Recession hit small business especially hard.  Over the course of the recession, small firms have accounted for 64 percent of net job losses.

On June 29, 2010, Senate Democrats have brought forward legislation that will promote job creation through a combination of much-needed tax credits, enhancements to Small Business Administration (SBA) lending, counseling and contracting programs, and the development of new community bank lending facilities.  The jobs bill, which is fully paid for, targets the unique needs of small businesses and community banks, giving them the tools they need to help sustain our economic recovery. 

The Small Business Jobs Act will:

  • Help small businesses access capital;
  • Increase small businesses’ ability to make investments;
  • Promote entrepreneurship; and
  • Promote equity.

Major Provisions

The following summaries are drawn heavily from analyses

provided by the Senate Finance Committee and Senate Small Business Committee.

Provisions to Promote Access to Capital

100% Exclusion of Small Business Capital Gains. Generally, non-corporate taxpayers may exclude 50 percent of the gain from the sale of certain small business stock acquired at original issue and held for more than five years.  For stock acquired after February 17, 2009 and before January 1, 2011, the exclusion is increased to 75 percent.  At the time of sale, however, 28% of the excluded gain will be treated as a tax preference item subject to the alternative minimum tax (AMT).  Qualifying small business stock is from a C corporation whose gross assets do not exceed $50 million (including the proceeds received from the issuance of the stock) and who meets a specific active business requirement.  The amount of gain eligible for the exclusion is limited to the greater of ten times the taxpayer’s basis in the stock or $10 million of gain from stock in that corporation.  This bill would temporarily increase further the amount of the exclusion to 100 percent of the gain from the sale of qualifying small business stock that is acquired after the date of enactment in 2010 and held for more than five years.  Additionally, the bill would eliminate the AMT preference item attributable for that sale.  This provision is estimated to cost $517 million over ten years.

General Business Credit Carried Back Five Years.  Under current law, a business’ unused general business credit may generally be carried back to offset taxes paid in the previous year, and the remaining amount may be carried forward for 20 years to offset future tax liabilities.  This bill would extend the one year carryback for general business credits to five years for certain small businesses.  This would apply to general business credits for those sole proprietorships, partnerships and non-publicly traded corporations with $50 million or less in average annual gross receipts for the prior three years.  This provision is estimated to cost $107 million over ten years.

General Business Credit Not Subject to AMT.  Under the Alternative Minimum Tax (AMT), taxpayers may generally only claim allowable general business credits against their regular tax liability, and only to the extent that their regular tax liability exceeds their AMT liability.  A few credits may be used to offset AMT liability, such as the credit for small business employee health insurance expense.  This bill would allow certain small businesses to use all types of general business credits against their AMT.  This applies to general business credits for those sole proprietorships, partnerships and non-publicly traded corporations with $50 million or less in average annual gross receipts for the prior three years.  This provision is estimated to cost $977 million over ten years.

S Corp Holding Period. Generally, a C corporation converting to an S corporation must hold onto any appreciated assets for 10 years following its conversion or face a business-level tax imposed on the built-in gain at the highest corporate rate of 35 percent. This holding period is reduced where the 7th taxable year in the holding period preceded the taxable year beginning in 2009 or 2010.  This bill would temporarily shorten the holding period of assets subject to the built-in gains tax to 5 years if the 5th taxable year in the holding period precedes the taxable year beginning in 2011.  This provision is estimated to cost $70 million over ten years.

Increase Small Business Administration (SBA) Loan Limits.  This provision would increase 7(a) loan limits from $2 million to $5 million, 504 loans from $1.5 million to $5.5 million, and microloans from $35,000 to $50,000.  SBA has estimated that the loan increase would increase lending to small businesses by $5 billion in the first year.  It would increase the 7(a) Express Loans from $300,000 to $1 million to increase working capital to small businesses.  The package would also includes Intermediary Lending Pilot program, which allows the SBA to make direct loans to eligible nonprofit lending intermediaries, in turn allowing them to make loans to new or growing small businesses. It would also provide the authority to guarantee Community Development Financial Institution issued bonds to foster lending in communities that have the least access to capital.  These provisions are estimated to cost $51 million over two years.

Small Business Lending Fund.  The bill would authorize the creation of the Small Business Lending Fund to provide the Treasury Department with the ability to purchase preferred stock and other debt instruments from eligible financial institutions with less than $10 billion in total assets.  Eligible institutions include insured depositories, bank and savings and loan holding companies, and certain community development loan funds.  Eligible institutions with less than $1 billion in total assets can apply to receive investments of up to five percent of their risk-weighted assets.  Eligible institutions between $1 billion and $10 billion in total assets can receive investments of up to three percent of risk-weighted assets.  Participating institutions will pay a five percent dividend rate on the preferred stock, but this rate can be reduced to as low as one percent if a bank demonstrates a 10 percent increase in small business lending relative to a baseline set using the four quarters prior to enactment.  The dividend rate is increased to seven percent after two years, if the bank does not increase its small business lending.  To encourage timely repayment, the rate increases to nine percent after four and a half years.  Treasury’s authority to make capital investments under the program is terminated one year after the date of enactment.   This provision is estimated to raise $1.1 billion over ten years.

State Small Business Credit Access Fund.  The bill would provide $900 million in grants to States to support small business lending programs.  States will apply for the funds to be used for approved programs that leverage private lenders to extend greater credit to small businesses and manufacturers.  The program would allow states to build upon successful models for state small business programs, including capital access, loan participation, collateral support, State-run venture capital, and credit guarantee programs.  Funds would be allocated to the States using formulas based on certain State employment and unemployment rate data.  States have nine months to apply for the program.  If the state does not apply, the largest municipalities of the states can apply.  This provision is estimated to cost $900 million over ten years.

Provisions to Stimulate Investment

Increase of Section 179 Expensing and Expansion to Certain Real Property.  Under current law, taxpayers may elect to write-off the costs of certain tangible personal property that is purchased for use in the active conduct of a trade or business in the year of acquisition in lieu of recovering these costs over time through depreciation.  For the taxable year beginning in 2010, taxpayers may write-off up to $250,000 of these capital expenditures subject to a phase-out once these capital expenditures exceed $800,000.  After 2010, the thresholds revert to $25,000 and $200,000, respectively.  This bill would increase the thresholds to $500,000 and $2,000,000 for the taxable years beginning in 2010 and 2011.  Within those thresholds, this bill would allow taxpayers to expense up to $250,000 of the cost of qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property. This provision is estimated to cost $2.2 billion over ten years.

Extension of Bonus Depreciation. Businesses are allowed to recover the cost of capital expenditures over time according to a depreciation schedule.  Congress temporarily allowed businesses to recover the costs of certain capital expenditures made in 2008 and 2009 more quickly than under ordinary depreciation schedules by permitting those businesses to immediately write-off 50 percent of the cost of depreciable property placed in service in those years.  This bill would extend the additional, first-year 50 percent depreciation for qualifying property purchased and placed in service in 2010.  This provision is estimated to cost $5.5 billion over ten years.

Provisions to Promote Entrepreneurship

Increased Deduction for Start-up Expenditures. Under current law, taxpayers may deduct up to $5,000 in trade or business start-up expenditures. The amount that a business may deduct is reduced by the amount by which start-up expenditures exceed $50,000.  Start-up expenditures are defined as expenses paid or incurred in connection with investigating or creating an active trade or business, which would be deductible if paid or incurred in connection with the operation of an existing trade or business.  For the taxable year beginning in 2010, this bill would temporarily increase the amount of start-up expenditures that may be deducted to $10,000 subject to a $60,000 phase-out threshold. This provision is estimated to cost $230 million over ten years.

Small Business Export Promotion.  The Office of the United States Trade Representative (USTR) plays an important role in promoting U.S. exports, and recently increased its focus on small business export promotion in particular.  USTR has done so in several respects, including the creation of the position of Assistant USTR for Small Business, Market Access, and Industrial Competitiveness within USTR.  This official will help ensure that USTR’s trade policy addresses the challenges facing smaller U.S. exporters and promotes global export opportunities for them.  The bill would authorize funds for USTR’s market access and trade enforcement activities targeted at helping small business increase market access and would ensure a level playing field on which to sell their U.S. made goods.  This provision has no cost associated with it.

Enhanced Small Business Trade Opportunities.  The bill would make key changes to the SBA’s international trade and export assistance programs, establishing the agency as a more robust resource for small businesses seeking export assistance.  Specifically, it would elevate the SBA’s Office of International Trade and adjusts the agency’s international trade loan programs to provide small businesses with practical, user-friendly financing options.  To provide small businesses with a unified and comprehensive network of export assistance resources, the provision would strengthen coordination between federal and state agencies as well as SBA resource partners, and increases the number of SBA Export Finance Specialists assigned to U.S. Export Assistance Centers.  Further, the provision would provide $60 million over two years to establish the State Trade and Export Promotion Grant Program (STEP), which seeks to increase the number of small businesses that export by helping them to defray startup costs associated with exporting.  In addition, this provision would leverage more than $1 billion in export capital for small businesses, helping to create or save as many as 40,000 – 50,000 jobs in 2010.  This provision is estimated to cost $69 million over two years.

Improved Small Business Federal Contracting Opportunities. The bill would remove the red tape and closes loopholes that too often put government work into the hands of multinational corporations instead of Main Street businesses. Increasing contracts to small businesses by just 2 percent can create more than 60,000 jobs.  This legislation would also provide for a periodic review of small business size standards to ensure that size indicators are consistent with inflation and industry growth of small businesses.  It would establish accountability of large business prime contractors for prompt payment to small business subcontractors.  It would also provide $10 million over two years for the Teaming Pilot Program.  This provision is estimated to cost $30 million over two years.

Relief for Community Partners.  This provision would allow SBA to waive or reduce the non-federal share of its funding requirements for up to one year, through fiscal year 2012, for certain Women’s Business Centers (WBCs) and microloan intermediaries, which provide assistance to start and grow small businesses with an emphasis on those in underserved communities.  The SBA estimates that the microloan program will create or save more than 10,000 jobs in Fiscal Year 2011.  This legislation would also provide an additional $50 million for the Small Business Development Centers to provide technical assistance to small business owners and entrepreneurs.  This provision is estimated to cost $51 million for one year.

Provisions to Promote Equity

Modify Section 6707A Penalty.  The bill would revise section 6707A of the Internal Revenue Code to make the penalty for failing to disclose a reportable transaction proportionate to the underlying tax savings.  The penalty for failure to disclose reportable transactions to the IRS would be set at 75 percent of the tax benefit received.  Reportable transactions are defined as investments in transactions that the IRS has identified as listed tax shelters or that have characteristics of tax shelters, including large losses or confidentiality agreements. The minimum penalty under this bill is $10,000 for corporations and $5,000 for individuals, and the maximum penalty is $200,000 for corporations and $100,000 for individuals.  The bill would also requires the IRS to provide an annual report to the Senate Finance Committee and to the House Ways and Means Committee giving an account of certain tax-shelter related penalties asserted during the year.  This provision is estimated to cost $176 million over ten years.

Deductibility of Health Insurance for the Purposes of Calculating Self-Employment Tax. Under current law, business owners are not permitted to deduct the cost of health insurance for themselves and their family members for purposes of calculating self-employment tax.  This provision would allow business owners to deduct the cost of health insurance incurred in 2010 for themselves and their family members in the calculation of their 2010 self-employment tax.  This provision is estimated to cost $1.96 billion over ten years.

Enhancements to Small Business Contracting Parity Programs.  This provision makes clear that no single small business contracting program has priority over another.   It would place the small business contracting programs — HUBZone, 8(a), Service-Disabled Veterans and Women-Owned Businesses — on a level playing field when competing for federal contracts.  Until we fix this, socially and economically disadvantaged small businesses will be at a disadvantage in competing for federal contracts, holding back job creation among populations that have been the hardest hit by the unemployment crisis.  This provision has no cost associated with it.  This provision has no cost associated with it.

Improvements to Disaster Recovery to Include Aquaculture.  Currently, the SBA excludes aquaculture businesses (e.g., farmers of  algae, alligators, frogs, turtles, seaweed, clams, crawfish, fish farms/hatcheries, mussels, and oysters) from receiving SBA Economic Injury Disaster Loans (EIDLs).  This section would allow SBA, provided it does not duplicate other Federal disaster programs for that disaster, to make economic injury disaster loans to these businesses.  Currently these businesses are falling through the cracks when there is a disaster on our lakes and coasts, such as with Red Tide on the Eastern Coast, hurricanes in the Gulf of Mexico, and recently with the Deepwater Horizon oil spill.  This provision would eliminate Federal bureaucracy by allowing SBA to assist aquaculture businesses if no other agency is assisting them.  By making this simple change, we can save jobs and businesses in communities where these industries are often the main source of employment and income.  This provision has no cost associated with it. 

Require Federal Agencies to Expand Their Assessments of Economic Effects on Small Businesses.  This provision would strengthen the Regulatory Flexibility Act by requiring agencies to respond to the SBA Chief Counsel of Advocacy’s comments in the final rule.  It also seeks more independence for the Office of Advocacy by mandating a separate line item in the SBA’s annual budget.  This provision has no cost associated with it. 

Offsets – Reducing the Tax Gap

Require Information Reporting for Rental Property Expense Payments.  The bill would require persons receiving rental income from real property to file information returns to the IRS and to service providers reporting payments of $600 or more during the year for rental property expenses.  In general, there is an exception for individuals renting their principal residences, including active members of the military, from the reporting requirements.  This provision is estimated to raise $2.5 billion over ten years.

Increase Penalties for Failure to File Information Returns.  The bill would increase penalties for failure to timely file information returns to the IRS.  The first-tier penalty is increased from $15 to $30, and the calendar year maximum would be increased from $75,000 to $250,000.  The second-tier penalty would be increased from $30 to $60, and the calendar year maximum is increased from $150,000 to $500,000.  The third-tier penalty would be increased from $50 to $100, and the calendar year maximum from $250,000 to $1.5 million.  For small filers, the calendar year maximum is increased from $25,000 to $75,000 for the first-tier penalty, from $50,000 to $200,000 for the second-tier penalty, and from $100,000 to $500,000 for the third-tier penalty.  The minimum penalty for each failure due to intentional disregard is increased from $100 to $250.  The penalty amounts would be adjusted every five years for inflation.  Penalties for failure to file information returns to payees are similarly increased.  This provision is estimated to raise $421 million over ten years.

Application of Levy to Payments to Federal Vendors Relating to Property.  The bill clarifies that Treasury’s continuous levy authority on government payments to Federal contractors who owe back taxes to the IRS applies to amounts paid for property, as well as to payments for goods and services.  This provision is estimated to raise $144 million over ten years.

Application of Continuous Levy to Tax Liabilities of Certain Federal Contractors.  Generally, before the IRS can issue a levy for an unpaid Federal tax liability, it must give the taxpayer an opportunity for a collection due process (CDP) hearing.  Prior to the Federal government making disbursements to Federal contractors, an automated check for a Federal tax liability occurs.  When such a liability is identified, the IRS issues a CDP notice to the contractor but cannot levy on payments to the contractor until the CDP requirements are complete.  The bill allows IRS to issue levies prior to a CDP hearing on Federal tax liabilities of Federal contractors.  It would also provide the taxpayer with an opportunity for a CDP hearing within a reasonable time after a levy is issued.  This provision is estimated to raise $1.1 billion over ten years.

Clarify Bad Check Penalty. The bill would expand the penalty for submitting a bad check to the IRS for payments made through any commercially acceptable means, including electronic payments.  This proposal is estimated to raise $49 million over ten years.

Offsets – Increasing Flexibility in Retirement Preparation

Allow Participants in Governmental 457 Plans to Treat Elective Deferrals as Roth Contributions.  Beginning in 2011, the bill would allow retirement savings plans sponsored by state and local governments (governmental 457(b) plans) to include Roth accounts, which are currently available only in 401(k) and 403(b) plans and will be available in the Federal Thrift Savings Plan in 2011.  Contributions to Roth accounts are made on an after-tax basis, but distributions of both principal and earnings are generally tax-free.  This provision is estimated to raise $506 million over ten years.

Allow Rollovers from Elective Deferral Plans to Roth Designated Accounts.  The bill would allow 401(k), 403(b), and governmental 457(b) plans to permit participants to roll their pre-tax account balances into a Roth account.  The amount of the rollover would be includible in taxable income except to the extent it is the return of after-tax contributions.  If the rollover is made in 2010, the participant can elect to pay the tax in 2011 and 2012.  Plans would be able to allow these rollovers immediately upon enactment.  This provision is estimated to raise $5.1 billion over ten years.

Offsets – Closing Unintended Loopholes

Crude Tall Oil Ineligible for Cellulosic Biofuel Producer Credit.  In 2008, Congress enacted a $1.01 per gallon tax credit for the production of biofuel from cellulosic feedstocks in order to encourage the development of new production capacity for biofuels that are not derived from food source materials.  Some taxpayers are seeking to claim the cellulosic biofuel tax credit for processed fuels that are highly corrosive, such as crude tall oil (another waste by-product of the paper manufacturing process).  The bill would limit eligibility for the tax credit to fuels that are not highly corrosive (i.e., fuels that could be used in a car engine or in a home heating application).  This provision is estimated to raise $1.8 billion over ten years.

Legislative History

H.R.5297, the Small Business Lending Fund Act of 2010 was introduced in the House on May 13, 2010.  On June 17, 2010, the House passed H.R.5297 by a vote of 241 – 182. 

The legislation was received in the Senate on June 18, 2010, and a cloture motion on the motion to proceed to the bill was invoked on June 29, 2010 by a vote of 66-33.  Per a previous agreement, all post-cloture debate time was yielded back and the motion was agreed to.  Senator Reid, for Senators Baucus and Landrieu, then offered the Substitute Amendment #4402, the Small Business Jobs Act of 2010.  

Expected Amendments

The DPC will distribute information on amendments as it becomes available to staff listservs.

Administration Position

On June 14, 2010, the White House released its Statement of Administration Policy on H.R.5297:

“The Administration strongly supports House passage of H.R.5297.  Small businesses are the backbone of the American economy and where most new jobs begin.  One of the major challenges facing small business owners is access to the credit that they need to grow and hire.  The House legislation includes two important Administration proposals to help address that problem.  First, the legislation would establish a Small Business Lending Fund that provides incentives for smaller banks to make new loans.  Second, the legislation would establish a State Small Business Credit Initiative that would spur over $20 billion in new lending through innovative State-based programs at a time when States are being forced to cut back on them due to budget shortfalls.  In addition, related legislation that the Administration understands will be incorporated into H.R.5297 includes the President’s proposal to eliminate capital gains taxes on owners of small business stock, a step that will spur investment, innovation, and job creation by small businesses.

“In addition to the two lending initiatives described above, the Administration also looks forward to working with Congress on the initiatives the Administration has worked on with the House and Senate Small Business Committees that will allow creditworthy small businesses to expand and create jobs.”

Resources

Senate Democratic Policy Committee

          Unlocking Credit for Small Businesses: The Key to Recovery and Job Creation on

Main Street

Congressional Research Service

           Small Business: Access to Capital and Job Creation (June 2010)

Small Business Administration 7(a) Loan Guaranty Program (June 2010)

Small Business Tax Benefits: Overview of Current Law and Economic Justification (April 2010)

Distribution of Small Business Ownership and Income by Individual Tax Rates and Selected Policy Issues (February 2010)

Small Business Tax Benefits and the American Recovery and Reinvestment Act of 2009 (July 2009)

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