- Category: National
- Published: Friday, 17 September 2010 21:53
- Written by Douglas Beckett
- Hits: 2723
US Congress has passed the Small Business Jobs Act that places $30 billion at the disposal of banks, with rules and regulations aimed at making loans more accessible. While Democrats and President Obama have heralded it as a job-creator, Republicans and many business organizations have greeted it far less enthusiastically.
Montana’s U.S. Senator Max Baucus takes credit for introducing the bill and leading the charge in passing it, as chairman of the “powerful” Senate Finance Committee. He said it will stimulate investment and provide support for Montana entrepreneurs, without adding “a dime to the federal deficit.”
On the other side, it’s been greeted as a “big-government boondoggle and a missed opportunity for real relief for small business.”
So what’s the real story?
Opposition to the jobs bill stemmed primarily from concerns that its benefits are not broadly applicable. They target politically correct groups as it emphasizes “linguistically and culturally appropriate outreach,” more so than supporting strong businesses – those most likely being able to grow and expand.
The bill set up a $30 billion small business lending fund, by buying preferred stock in banks. In return the banks are required to make loans at higher-risk levels than they would otherwise embrace. Say some, the plan is not unlike the mortgage program that pressured banks to make loans to home-buyers who would otherwise not qualify for a mortgage. Proponents call it “nudging” the banks.
In addition there are a host of changes in law that, according to Sen. Baucus will give small businesses greater opportunity and level the playing field in competing with big corporations.
Opponents mostly complain about measures that weren’t in the bill, unhappy about the failure to make amendments that would have changed regulations that they believe would be of greater benefit.
Among the benefits that Sen. Baucus touted were:
--It allows business investors to exclude from income the gains from the sale of certain small business stock for tax purposes, which will help owners access more private capital.
--It will allow businesses to carry back general business tax credits to offset taxes from the previous five years.
--The legislation establishes the State Small Business Credit Initiative to provide $1.5 billion in grants to state government programs for business.
--It raises the cap on small business loans and refinances commercial real estate debt into long-term, fixed-rate loans.
--More funding will go into Small Business Administration (SBA) loan programs.
--The legislation allows taxpayers to write off more of the cost of business purchases, such as equipment and machinery. The legislation also expands the types of purchases that would qualify for special expensing to include some types of real property.
--The legislation doubles the amount of start-up expenditures as tax deductions by someone starting a small business.
--It provides more funding for the Office of the United States Trade Representative’s small business export promotion and trade enforcement activities, and for the SBA’s trade and export finance programs.
--It also creates the State Export Promotion Grant Program.
--It attempts to exempt small businesses from penalties applied to corporations investing in tax shelters and remove red tape involved in getting government contracts.
--The legislation allows self-employed individuals to deduct health insurance costs so they can better pay the self-employment tax.
To pay for the benefits outlined:
The bill requires persons receiving rental income from real property to file information returns to the IRS and to service providers reporting payments of $600 or more. It is expected to raise $2.5 billion additional taxes over ten years.
There was no public discussion about the fact that the bill doubles penalties for failure to timely file information returns to the IRS. It also eliminates a former due process that the IRS was required to give taxpayers before levying charges for unpaid taxes. Together the changes will raise over $1.5 billion dollars.
The legislation also makes changes to retirement plans that result in new taxes for the federal government, revenues in excess of $5 billion over ten years.
Other revenue-generating measurers involve the elimination of some biofuel tax credits and a change in “source rules” which will generate almost $4 billion in additional taxes over 10 years.
John Berlau, Director, of the Center for Investors and Entrepreneurs of the Competitive Enterprise Institute (CIE), was critical of the Senate leadership for blocking amendments which he said, unlike the underlying bill, would actually have eased the burden for the majority of small businesses.
An example was the refusal by the Democratic leadership to consider an amendment that would have repealed a hidden aspect of the Health Care Legislation that requires that every business file IRS 1099 reports on any purchase of $600 or more.
Berlau also worried that the bill holds the potential for the same kind of threats as those employed through the Community Reinvestment Act, which coerced mortgage companies into making unsound loans, which eventually helped bring on the mortgage crisis.
Another amendment would have been a no-cost approach to making loans more readily available to businesses by removing a cap on the size of loans that Credit Unions can make. The cap was put in place at the behest of the banking lobby in 1998. The Credit Union National Association has estimated that the measure would create billions in new loans and more than 100,000 jobs in its first year of enactment.
Wayne Crews, vice president for policy and director of technology studies at the Competitive Enterprise Institute, said, “One tries in vain to argue that the answer to recovery is not to artificially stimulate anything, or to overrule prices and rates in the marketplace; those are signals about underlying realities to heed and allow to play out. But beyond that, we must cut regulations that paralyze business and job creation. The starting point is to inventory all the regulations that impact a small business as it grows, and set about rolling them back.”