Small businesses have become a key weapon in politicians’ arsenals when arguing for practically any policy that has an economic impact. Policies associated with the current tax and budget debate are no exception. Countless rounds of legislative battles were fought in 2012 over what to do about the “fiscal cliff,” and now that lawmakers have resolved that issue, the debate over reducing our federal budget deficit is front and center.
Small Business Majority recommends a balanced approach to resolving our tax and budget dilemma that is mindful of our long-term deficit while cognizant of the fact that our economy isn’t out of the woods yet. As lawmakers tackle the deficit, any short-term measure or comprehensive deficit reduction deal must continue to invest in America to boost job creation. That means pursuing revenue positive corporate tax reform that eliminates loopholes favoring large companies and promotes a level economic playing field where everyone pays their fair share.
We recommend the following policies (for most of which our opinion polling shows small businesses support) as key elements of a balanced approach to our fiscal needs.
Corporate taxes
- Reform the corporate tax code in a revenue positive manner by closing corporate loopholes that do not contribute to small business success or job growth, while reasonably lowering the corporate tax rate from 35% to 28%
- Eliminate oil and gas company subsidies and tax breaks
- Eliminate tax breaks for moving production overseas and provide incentives for bringing production back to the United States
- Provide a 10% tax credit for companies that increase their payroll by hiring more workers or giving their employees raises
- Double the deduction for startup expenditures from $5,000 to $10,000
- Expand, simplify and make permanent the R&D tax credit
- Cut the top corporate tax rate for manufacturing income to 25% and cut the rate for advanced manufacturing, which uses emerging technologies and tightly controlled processes, even lower
- Extend, consolidate and enhance key tax incentives to encourage investment in clean energy—e.g. make permanent the tax credit for production of renewable electricity (PTC)
- Eliminate last-in first-out accounting, a method of accounting for inventories where it’s assumed that the cost of inventory items that are sold is equal to the cost of inventory items that were most recently purchased or produced
Spending
- Maintain current benefits for Social Security
- Enable taxation of higher incomes for Social Security by raising the income cap on Social Security payroll taxes, promoting the program’s solvency while keeping benefits intact
- Ensure that the current method for calculating the cost of living remains intact, as changing it would reduce Social Security benefits over time
- Maintain current benefits for Medicare
- Maintain current benefits for Medicaid
- Maintain sufficient funding of infrastructure projects
- Preserve funding for the small business loan and counseling programs under the Small Business Administration (SBA), and provide ongoing training on SBA products
- Ensure there are sufficient funds for government contracts that small businesses can bid on
- Increase government investments in clean energy technologies, renewable energy and energy efficiency
- Preserve funding for state grants that provide career and technical education for students in high schools, technical schools, and community colleges with core academic and employability skills, as well as job-specific technical training
Personal income tax
- Close the “carried interest” loophole: tax hedge fund managers and other finance powerhouses at wage and salary rates (a top rate of 39.6%) rather than the 20% maximum capital gains rate they currently pay
- Allow self-employed individuals to deduct health insurance costs from their 15.3% payroll tax (reinstate policy that was in place for one year in 2010)
Recently passed policies we support
- Extending tax cuts for household income under $450,000 (nearly all small business owners and consumers fall into this category), while allowing tax cuts on household income above that threshold to expire (however, a threshold of $250,000 would have been preferable).
- Raising the maximum tax rate on capital gains for taxpayers with household income above $450,000 from 15% to 20%, while leaving it at the current rate of up to 15% for everyone else
- Permanently adjusting the AMT rate for inflation
- Providing a 100% exclusion of capital gains on qualified small business stock sold prior to Jan. 1, 2014
- Allowing small businesses to expense qualified capital investments up to $500,000, an amount that was originally set to reduce to $25,000 in 2013
- Retroactively extending the R&D tax credit through 2013, as it expired at the end of 2011
- Extending the tax credit for production of renewable electricity (PTC) for projects completed in 2013