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February 2012 | See all news in this issue

Tax breaks for small businesses could be enacted…

Proposals to enact or expand tax provisions to help small businesses and start-up firms may have a chance for passage this year. Unlike some of the more far-reaching tax relief proposals for large corporations, the assistance for small firms is less controversial and has bipartisan support in both the House and Senate.

Among the proposals that could be enacted:

  • Elimination of capital gains taxes for investments in small businesses.
  • A one-year extension on the immediate deduction of all costs of equipment and software purchases.
  • A new 10 percent tax credit for small businesses that add jobs or increase wages in 2012.
  • Higher ceilings for “small public offerings” that don’t require companies to undergo an extensive Securities and Exchange Commission registration process (IPOs). These are limited to $5 million now but could be raised as high as $50 million.

But no action on tax changes for big corporations…

There’s lots of talk about reforming corporate tax rules to make U.S. companies more competitive in the global economy—lowering or eliminating corporate income taxes, providing tax incentives for companies that bring jobs back to this country and changing the rules for taxing income generated overseas.

Unlike the proposals to assist small businesses, the “big business” tax changes face a far less unified corporate community depending on the amount of revenue companies generate domestically or overseas. This year will be devoted to political posturing as both parties jockey for advantage in the November elections. Most of the debate will be designed for public consumption rather than toward achieving substantive change.

And despite bipartisan agreement on the need to reduce the tax burden imposed on corporations, the debate will inevitably end up focused on sexier issues surrounding individual tax reform. Democrats will push for increasing the taxes on wealthy Americans—particularly through a higher tax rate for millionaires and a requirement that they pay at least the 30 percent marginal tax rate regardless of the source of their income. Republicans will counter with proposals to reduce levies on dividends, capital gains and estates.

Broad tax reform will wait until 2013, after the fall elections have decided who controls the White House and both chambers in the Congress.

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