The National Small Business Association is warning that some of the tax proposals in President Obama’s business tax reform framework could hurt small businesses.
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Treasury Secretary Timothy Geithner unveiled the Obama administration’s business tax proposals on Wednesday, which include lowering the top corporate income tax rate from 35 to 28 percent, and eliminating dozens of tax loopholes and subsidies (see Obama Proposes Business Tax Reforms). The administration is also advocating making the Research & Experimentation Tax Credit permanent, doubling the deduction for business startup costs, and increasing the Section 179 expensing level to $1 million.
However, the group pointed out that the administration’s proposal fails to ensure parity between small and large business. Small businesses could soon be facing tax rates of up to 40 percent or more, the group warned.
“Although the proposal does include some positive language for small-business tax credits, NSBA believes firmly that the only way to ensure fairness, transparency and eased complexity of the U.S. tax code is broad reform,” said NSBA president Todd McCracken in a statement. “And that must also include individual income taxes.”
The group noted that the proposal would not lower the tax rates of the 83 percent of small businesses that pay taxes on the owner’s personal income tax level. The NSBA also criticized the administration’s proposal to eliminate "last in first out" accounting and changing depreciation schedules that would scale back capital cost recovery. Other proposed changes could have a substantial negative effect on small business, according to the group, although it admitted that the proposals are unclear.
On a positive note, the NSBA acknowledged that Obama administration’s proposed tax reform framework does include provisions that would help small business: expanding and make permanent the R&E tax credit; increasing Section 179 expensing to $1 million; doubling the deduction for start-up costs from $5,000 to $10,000; and allowing cash accounting on businesses with up to $10 million in gross receipts. The proposal also mentions expanding and simplifying the health insurance tax credit, but provides few details.
“This plan appears to be driven by the bipartisan consensus that a greatly simplified tax system can unleash greater economic growth," said NSBA chair Chris Holman, CEO of Michigan Business Network.com and President of The Greater Lansing Business Monthly. “Unfortunately, without broad tax reform, such as the Fair Tax, this proposal falls short of that.”
Another small business advocacy group, the National Federation of Independent Business, also disagreed with some of the administration's business tax reform proposals.
“Once again, President Obama has demonstrated that he knows big business, not small,” said NFIB CEO Dan Danner in a statement. “For the last several years, small-business owners have been trying to convey to Washington, D.C., that the uncertainty of its policies makes it incredibly difficult to run a business and plan for the future and today’s announcement of corporate tax reform shows that Washington still does not understand. Reforming the corporate tax code does not help the majority of small businesses; in fact, it creates even more uncertainty by taking away the deductions that many small-business owners count on each year. Furthermore, as complicated as the tax code is, this plan from the administration will make it even more complicated for a small-business owner. At what point does big business stop dictating the policies in Washington, D.C.? The focus should be on individual rate reform, keeping the tax rates for small business low, and allowing small businesses to actually grow and create jobs, as opposed to being a piggy bank for the IRS.”