Small Business Tax Relief Bills Approved by House

By Stephen Cooper, Washington Staff Writer

The House of Representatives recently has approved two small business bills on party-line votes. Under one measure, new small businesses would get an additional write-off for startup expenses and investors in small businesses would get temporary capital gains tax-free treatment. In the second bill, up to $30 billion in federal dollars would be made available by the Treasury Department to states and banks lending to small businesses. The measures face an uncertain future in the Senate.

Small Business Tax Package

Democratic lawmakers pushed aside GOP complaints about the effectiveness of the Small Business Jobs Tax Relief Act of 2010 and passed the measure by a vote of 247-to-170 on June 15. The bill includes a $1.9-billion provision that would allow individuals to take a 100-percent exclusion of capital gains taxes for investing in stock of small businesses from March 15, 2010, to January 1, 2012.

Under this bill, small businesses would be permitted to deduct up to $20,000 in small business start-up expenses that aren't related to capital or equipment. Another provision of the bill would ease the at-risk rules with respect to non-recourse Small Business Administration loans. This would permit expenditures made under the loans to be deducted from related business income.

The measure would also exclude from gross income benefits received by small businesses under the Small Business Borrower Assistance Program. However, it would require an adjustment to the basis of property purchased with funds received under that program.

The $3.5 billion cost of the small business tax bill would be offset by tax increases of $7 billion, primarily changing gift tax rules for grantor retained annuity trusts (GRATs), which is a form of estate tax planning employed by some small business owners. Also, crude tall oil (a by-product of paper making) would now be ineligible for the cellulosic biofuel producer credit.

Ways and Means Ranking Member Dave Camp (R-Mich.) said the tax relief is too narrowly crafted to have much impact on small businesses. "This legislation is nothing more than smoke and mirrors," said Rep. Tim Murphy (R-Pa.). "The Majority wants the American people to believe it's a $3.5 billion tax cut for small businesses, but, at the same time, the bill raises taxes by $7 billion, a burden to be carried by small business owners and job creators."

In contrast, House Ways and Means Chairman Sander M. Levin (D-Mich.) maintained that the bills contain important tax cuts and lending opportunities that will help small business owners to grow their businesses.

Small Business Lending Bill

Two days later, on June 17, House lawmakers voted 241 to 182 to approve the Small Business Lending Fund Act of 2010. This bill would create a $30 billion fund for small and medium-sized community banks to leverage up to $300 billion in loans for small businesses. Lending institutions would get favored interest rates if the federal government approves of their lending patterns, while other institutions would be subject to higher interest if their lending does not meet new federal standards.

In addition, the lending fund bill would help innovative state partnerships better meet the credit needs of small firms. In the current economy, these partnerships are often the victims of state budget cuts, according to supporters of the bill.

"Nothing is more important right now than job creation," said Rep. Dan Lipinski (D-Ill.). "That means we must ensure small businesses have access to credit and the ability to take advantage of new opportunities and hire new workers. I'm pleased that this bill takes an important and much-needed step in that direction."

Critics of the bill charged that similar small business lending measures have already been approved through TARP and other laws passed since the economic crisis began.

"It's apparently escaped the proponents' attention that we are already doing precisely what the proposed new small business lending fund would do through the TARP's existing Capital Purchase Program," said Rep Tom McClintock (R-Calif.). "That's the conclusion of the Special Inspector General of TARP, Neil Barofsky. So if this scheme actually worked, we wouldn't need this bill--banks would already be lending like crazy. The problem is, it doesn't work."