Small-Business Bill Stalls in Senate

Everyone agrees that small businesses are the engines of economic growth, but these job creators are out of gas because Democrats and Republicans can’t agree on what kind of fuel to use.

Legislation pending in the Senate aims to provide small businesses with easier access to credit and a scattering of tax breaks, but it’s stalled because Senate Majority Leader Harry Reid, Democrat of Nevada, doesn’t like amendments proposed by Republicans. Too many have little to do with small business, Reid said.

“We’re not getting a lot of cooperation” from Republicans, he said.

Is this part of a GOP strategy to keep unemployment high so voters will punish Democrats in November?

Reid didn’t answer this question directly, but he did say, “They want failure.”

The majority leader’s comments came at a press conference held today just off the Senate floor. The event was designed to promote the Small Business Jobs Act. This legislation would renew now-expired breaks on Small Business Administration loans, provide $30 billion in cheap capital that community banks could use for small-business loans, and give small businesses $12 billion in tax breaks.

Those provisions aren’t controversial, but Republicans want to use the bill to force votes on other issues, such as the estate tax. That tax on inherited assets was phased out this year by tax cuts enacted in 2001, but it will come roaring back next year at high rates and low exemption levels unless Congress acts. Reid doesn’t think the Small Business Jobs Act is an appropriate vehicle for dealing with the estate tax.

Few small-business owners ever become wealthy enough to be subject to the estate tax, but it does hit some family-owned businesses, particularly in capital-intensive industries and in areas with high real estate prices.

The Small Business Jobs Act may not address these situations, but otherwise, it has something for nearly every small business. The bill should make it easier to get a loan, and it would enable small businesses to write off more of the cost of capital investments immediately instead of depreciating them over time. It also would enable self-employed individuals to deduct their health insurance premiums from income subject to self-employment taxes—giving them the same break on health insurance premiums that other businesses get. This provision led the National Association for the Self-Employed to endorse the legislation, and the Independent Community Bankers of America backs the bill because of its $30 billion Small Business Lending Fund.

Terry Gardiner, policy director for Small Business Majority, doesn’t understand why this bill is running into problems, especially now, when the economy desperately needs healthy small businesses.

“In normal times, you would think it’s a no-brainer,” Gardiner said.

But Washington’s most powerful business group, the U.S. Chamber of Commerce, is “basically neutral” on the bill, said Bruce Josten, its top lobbyist. The Chamber doesn’t think the legislation will be very effective in helping small businesses, he said.

Plus, any good the bill may do is more than outweighed by the harm done by the prospect of tax increases next year, when the tax cuts enacted during President George W. Bush’s administration expire. Even if Congress extends lower tax rates for middle-income Americans, about 1 million small businesses would be hit by higher tax rates on wealthier Americans, he said. That’s because profits at most small businesses flow through to their owners for tax purposes and are taxed at individual income tax rates.

“You’re sucking capital away from the small-business community at a time when they’re already starved for capital,” he said.

---

Kent Hoover is the Washington bureau chief for bizjournals.