Washington Hotline

On August 30th, President Obama spoke in a White House Rose Garden press conference about the economy and the Small-Business Tax Relief Bill. He suggested, "The bill, which has failed to pass a procedural vote several times in the Senate, would enable small-business owners to get the credit they need and eliminate capital gains taxes on key investments so they will have more incentive to act right now."

The Senate Small Business Jobs Act of 2010 (H.R. 5297) provides several incentives that are intended to encourage small businesses to hire new workers. There is a one-year extension of bonus depreciation, an expansion of Sec. 179 expensing to $250,000, and sale of stock in new small businesses that may generally be sold with no capital gains tax.

However, there are provisions designed to cover the cost of the bill. The bill proposes that landlords file expanded information returns on rents received from tenants. In addition, there will be a new series of withholding requirements for guarantee fees.

Majority Leader Harry Reid (D-NV) responded to the very unpopular requirement for businesses to report all payments of $600 or more by proposing repeal of that provision. The $600 payment provision was part of the Healthcare Reform Bill and small businesses have objected strongly to the potential problems in tracking and reporting large numbers of payments.

President Obama also affirmed again his support for extending the tax cuts for individuals with incomes under $200,000 ($250,000 for married couples). He indicated that he will provide further detail on his plans later this month. However, the President still plans to increase the top two income tax brackets to 36% and 39.6% and increase the capital gains tax rate to 20%.

Senate Minority Leader Mitch McConnell (R-KY) observed that the net result of the plans by the President and the Majority Leader would be to reduce employment. He called the proposed tax increase on upper-income taxpayers, "a massive tax hike on small businesses in the middle of a recession."

Editor's Note: The Non-Partisan Tax Policy Center estimates that the tax increases on upper-income Americans would raise approximately $68 billion each year for the next decade. This increase comes from the higher income tax rates, the increase in capital gains rates, the restoration of phase outs for personal exemptions and a portion of itemized deductions.