The U.S. Department of the Treasury released Monday, Feb. 1 the General Explanations of the Administration's Fiscal Year 2011 Revenue Proposals (Greenbook). The Greenbook outlines the Administration's blueprint for agency funding for FY 2011 and includes a number of targeted provisions aimed at job creation, business investment, and tax relief and enhanced savings for middle class families.

SBA Budget & Lending Provisions
The administration offered a significant increase to the U.S. Small Business Administration (SBA) budget. The proposal—which amounts to $994 million total—is 20 percent higher than the 2010 level and more than double what was proposed under the last administration’s final budget. The White House also proposed raising the maximum allowable loan sizes for 7(a), 504, and microloans. Given the high default rate over the past few years in the SBA loan portfolio, the budget includes $165 million in subsidy costs, but directs the SBA to develop a plan to make the 7(a) loan program self-sufficient by 2012. Unfortunately that means these loans could be subject to rising fees and could price some small businesses out of using this valuable tool.

Also mentioned in the budget blueprint is the administration’s plan to divert TARP funds to community banks for small-business lending. Despite reports that banks are lending, availability of capital has not eased for small businesses in the last six months.  In fact, 39 percent recently reported an inability to garner adequate financing for their businesses. Please click here for more details on that proposal.

Small Business Taxes
The budget proposal would eliminate the capital gains tax on new investments in small business, which will certainly be helpful to a handful of small businesses. Additionally, the budget would extend for one year the provision passed in the American Recovery and Reinvestment Act (ARRA), which would allow small businesses to immediately expense up to $250,000 of qualified investments—a good incentive to small businesses who are able to reinvest in their business through the purchase of equipment. It also would extend bonus depreciation, providing an added incentive for immediate investment and savings for businesses in 2010 and 2011.

Also included in the budget proposal is a provision where employers would receive a tax credit of up to $5,000 against their payroll taxes for every net new employee they hire in 2010. Start-ups would be eligible for half the credit. This credit could be paid to small businesses on a quarterly basis, enhancing cash-flow. For those business owners who are contemplating hiring a new employee, this could be a good incentive to jump on the opportunity to hire a new employee. For those businesses not currently considering hiring, a $5,000 tax credit isn't likely to off-set the long-term commitment of hiring a new employee.

One part of a “carrots vs sticks” debate played out in the budget, the Administration aims to increase the current tax credit for employers that provide an IRA to their workers from $500 to $1,000 per employee. The credit would be eligible for up to three years, and would be a good incentive for employers to consider setting up an IRA. Unfortunately, the budget also outlines plans to mandate employers who aren’t currently offering a retirement plan to establish IRAs for all employees and facilitate direct-deposits into those accounts from the employees’ payroll.

The administration is proposing to allow the 2001 and 2003 Bush tax cuts to expire for individuals making more than $200,000 a year and families making more than $250,000, but would make the cuts permanent for those under this threshold. Unfortunately, the majority of small businesses are pass-through entities, meaning the business owners report all business income as personal income—regardless of the investments they have made back into the business. This will result in a top income tax rate of 39.6 percent.

The budget would also raise the capital gains tax rate and the dividends tax rate from 15 percent in 2010 to 20 percent in 2011, and would extend the Making Work Pay Credit by one year to allow a tax cut of up to $400 per person ($800 per family) to 95 percent of working Americans.

In terms of the estate tax, the budget blueprint extends the 2009 parameters—a top tax rate of 45 percent and an exemption amount of $3.5 million per individual. The blueprint also addresses the Alternative Minimum Tax (AMT), indexing it to inflation based on the 2009 levels as enacted in the American Recovery and Reinvestment Act of 2009-- $46,700 for single taxpayers and $70,950 for married taxpayers filing a joint return.  

The budget includes $100 billion for immediate job-creating investments in small business tax cuts, infrastructure, and clean energy. This includes a new $33 billion Small Business Jobs and Wages Tax Cut to spur small business hiring and wage increases. Click here for details on the Jobs and Wages Tax Cut proposal.

Exporting
The administration underscored their commitment to exporting, specifically with an eye toward small businesses. The budget includes a 20 percent increase up to $534 million for the Department of Commerce to promote small business exporting and work toward more small-business friendly climate in the exporting arena.

Health Care & Benefits
The administration’s plan to mandate IRAs for all employees, while a noble idea, could be a burden for many small businesses. There has not been enough consideration of how mandated IRAs would impact small businesses, particularly restaurants and retailers, that don’t use a payroll company or participate in direct deposits. According to an informal poll of our members, less than half use a payroll company. Among those that do, the cost ranges between $300 and $1,000 per month. Putting the responsibility on one of the most hard-pressed and financially strapped segments of today’s economy—small business—is not only unfair, it could be very problematic for some small businesses and their employees.

The administration has offered an incentive to employees to contribute in these mandated IRAs by expanding the Saver's Credit to match 50 percent of an individual's contribution up to $500 for those earning up to $65,000. Smaller credits would still be available for people earning up to $85,000.

Included in the FY2011 budget is a $150 billion placeholder, which is said to be reflective of suspected enactment of comprehensive health care reform. The dollar amount comes from the average budget impact of the 2009 House and Senate-passed versions of health care reform, extrapolated to 2020. The proposal also makes additional investments in community health centers, health information technology, and comparative effectiveness research.

Additionally, the budget blueprint provides an extension of the COBRA federal subsidy passed in the American Recovery and Reinvestment Act of 2009. The extension provides employees who are laid off from March 1, 2010 through Dec. 31, 2010 a 65 percent premium subsidy for up to 12 months. Under current law, employees laid off from Sept. 1, 2008, through Feb. 28, 2010, can receive the premium subsidy for up to 15 months. Those individuals would not be affected by the latest extension. Senate Democrats have discussed including the COBRA subsidy extension in the pending jobs bill expected this month.