Washington, D.C. – Today, Treasury Secretary Timothy Geithner announced a broad plan to reform corporate taxes which includes: lowering the corporate rate to 28 percent from 35 percent; eliminating myriad business tax breaks and credits; permanence of the R&E (also commonly referred to as the R&D tax credit) tax credits; doubling the deduction for start-up costs; and increased Section 179 expensing level of $1 million. Unfortunately, the proposal fails to ensure parity between small and large business, and small businesses soon could be facing tax rates of up to 40 percent or more.
“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,” stated NSBA President Todd McCracken. “And that must also include individual income taxes.”
In addition to punting on the tax rates paid by the 83 percent of small businesses that pay taxes on the owner(s) personal income tax level, this proposal would make two other potentially harmful changes: eliminating “last in first out” accounting and changing depreciation schedules which would scale back capital cost recovery. Other proposed changes could have a substantial negative effect on small business, however the proposal is unclear.
On a positive note, the proposal does include provisions that would help small business: expand and make permanent the R&E tax credit; increase Section 179 expensing to $1 million; double the deduction for start-up costs from $5,000 to $10,000; and allow 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 bi-partisan consensus that a greatly simplified tax system can unleash greater economic growth,” stated 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.”
Celebrating its 75th Anniversary in 2012, NSBA continues to advocate on behalf of America’s entrepreneurs. A staunchly nonpartisan organization, NSBA reaches more than 150,000 small businesses across the country and is proud to be the nation’s first small-business advocacy organization. For more information, please visit www.nsba.biz.