Senate Democrats

Senate Democrats Fighting for Small Business Tax Relief

Senate Democrats know that small businesses are the backbone of the American economy.  In fact, over the past 15 years, small businesses have created approximately 12 million, or two-thirds, of America’s new jobs.  That is why we have already passed eight important tax cuts to help small business owners grow their companies.  The new tax cuts, eight in all, will increase lending to small businesses, eliminate capital gains taxes on key investments, reduce start-up expenses, and reduce health care expenses for the self-employed.  And, this week, we have finally been able to secure passage of the Small Business Jobs and Credit Act of 2010 (H.R.5297), which includes more tax relief for small businesses. 

In contrast, Senate Republicans have chosen to protect big corporations and millionaires at the expense of small businesses across the country.  Republicans fought against the provisions in the American Recovery and Reinvestment Act (P.L. 111-5) and subsequent legislation, and continued to block the Small Business Jobs bill.  At a time when America’S..27 million small businesses are starving for adequate access to capital and desperately seeking to hire workers and expand their businesses, why are Republicans fighting against tax cuts for small businesses?

Democrats Have Passed Eight Key Tax Cuts for Small Businesses

·         Payroll Tax Holiday for New Hires:  The Hiring Incentives to Restore Employment (HIRE) Act provides a payroll tax holiday for businesses that hire unemployed workers and an income tax credit of $1,000 for businesses that retain these employees.  According to the Treasury Department, between February and June 2010, businesses had hired 5.6 million workers who had been unemployed for 8 weeks or longer, making those businesses eligible for HIRE Act tax exemptions and credits.  (P.L. 111-147)

·         Tax Credits for Health Insurance Coverage:  The Patient Protection and Affordable Care Act provides $40 billion in tax credits for small businesses to help them offer employee health insurance coverage – if they choose to do so.  These tax credits will cover a portion of the premium costs for their employees’ coverage.  More than 4 million small businesses are eligible for these credits.  (P.L. 111-148)

·         Net Operating Loss Carry Back:  The Worker, Homeownership and Business Assistance Act allows businesses to use net operating losses from 2008 or 2009 to offset profits from five previous years, up from two years.  (P.L. 111-92)

·         Enhanced Small Business Expensing:  The Recovery Act spurs small business investment by providing enhanced small business expensing, doubling the amount small businesses can immediately write off their taxes for capital investments and purchases of new equipment made in 2009.  (P.L. 111-5)  The HIRE Act extends the enhanced small business expensing provisions for investments and purchases made in 2010.  (P.L. 111-147)

·         Increased Bonus Depreciation:  The Recovery Act helps businesses quickly recover costs of new capital investments by providing increased bonus depreciation for businesses that made investments in new plants and equipment in 2009.  (P.L. 111-5)

·         Capital Gains Exclusion:  The Recovery Act spurs investments in small businesses by providing an exclusion of 75 percent (up from 50 percent) of capital gains from taxes for investors in small businesses who buy stock (in 2009 and 2010) and hold it for more than five years.  (P.L. 111-5)

·         Reduced Estimated Tax Payments:  The Recovery Act reduces the required estimated tax payments for certain small businesses in 2009.  (P.L. 111-5)

·         Reduction in Built-In Gains Holding Period:  The Recovery Act provides tax relief for taxable corporations converting into S corporations in 2009 and 2010 by reducing the built-in gains holding period from 10 years to 7 years (with gains held for the holding period exempt from tax).  (P.L. 111-5)

Small Business Jobs Bill Would Provide
Additional Tax Relief to Millions of Small Businesses

Over the objections of Republicans who tried to hold relief for small businesses hostage to their effort to reward corporate law firm partners and billionaire hedge fund managers, Democrats fought to pass a strong Small Business Jobs bill so that millions of small businesses will get the tax relief and access to credit that they need to expand, grow and hire.  The Small Business Jobs bill includes the following eight tax cuts:

·         Zero Taxes on Capital Gains from Key Small Business Investments:  Under the Recovery Act, 75 percent of capital gains on key small business investments were excluded from taxes.  The Small Business Jobs bill would eliminate all capital gains taxes on these investments for 2010.  Key investments in 1 million small businesses would be eligible for this tax cut.

·         Extension and Expansion of Small Businesses’ Ability to Immediately Expense Capital Investments:  The bill would temporarily increase for 2010 and 2011 the amount of investments in new plants or equipment that4.5 million small businesseswould be eligible to immediately write off to $500,000 – its highest limit ever – while raising the level of investments at which the write-off phases out to $2 million.

·         Extension of 50 percent Bonus Depreciation:  The bill would extend through 2010 a Recovery Act provision for 50 percent “bonus depreciation” for 2 million businesses, large and small, providing them with incentives to invest in plants and equipment by accelerating the rate at which they can deduct capital expenditures.

·         A New Deduction of Health Insurance Costs for Self-Employed:  The bill would allow 2 million self-employed to deduct the cost of health insurance in 2010 for themselves and their family members in calculating their self-employment taxes.  This provision is estimated to provide over $1.9 billion in tax cuts for these entrepreneurs.

·         Tax Relief and Simplification for Cell Phone Deductions:  The bill would change tax rules so that the use of cell phones can be deducted without burdensome extra documentation – making it easier for virtually every small business in America to receive deductions that they are entitled to.

·         An Increase in the Deduction for Entrepreneurs’ Start-Up Expenses:  The bill would temporarily increase in 2010 the amount of start-up expenditures entrepreneurs can deduct from their taxes from $5,000 to $10,000 (with a phase-out threshold of $60,000 in expenditures), offering an immediate incentive for someone with a new business idea to invest in starting up a new small business.

·         A Five-Year Carryback of General Business Credits:  The bill would allow certain small businesses to “carry back” their general business credits to offset five years of taxes – providing them with an instant tax break – while also allowing these credits to offset the Alternative Minimum Tax, reducing taxes for these small businesses.

·         Limitations on Penalties for Errors in Tax Reporting That Disproportionately Affect Small Business:  The bill would change the penalty for failing to report certain tax transactions from a fixed dollar amount – which was criticized for imposing a larger penalty on small businesses – to a percentage of the tax benefits from the transaction.