U.S. Budget Watch is a historical project of the Committee for a Responsible Federal Budget, which provided analysis around the 2008 and 2012 presidential campaigns. This site is not regularly updated.

How Congress Could Give Small Businesses A Bigger Incentive To Invest In Growth | The Business Journals

 Under current law, small businesses can expense only $25,000 in capital expenditures this year, a level far below the $500,000 Section 179 expensing limit that went into effect in 2003.

Congress is likely to remedy that problem in December, just like it did last year, when it retroactively raised the Section 179 expensing limit for 2014 to $500,000 on Dec. 19. That left small businesses 12 days to buy eligible equipment and put it into service in order to take advantage of this tax break. This short window sharply reduced the impact of this tax incentive for small businesses to invest in growth.

“Forklifts and combines are not eligible for Amazon Prime and two-day delivery,” wrote Amanda Austin, vice president of public policy for the National Federation of Independent Business, in a letter to Congress this month. “Some equipment can take weeks or even months to order, and as a result, many small businesses forfeited the benefit. Many no doubt canceled their plans in the hope that 2015 would be different. Here we go again.”

NFIB and other business groups want Congress to end the guessing game on whether tax incentives such as Section 179 expensing and the research and development tax credit will be available in a given year by making these tax breaks permanent.

The temporary nature of these tax breaks is an example of the Washington-created uncertainty that “hangs over small business like a dense fog,” Austin wrote.

Making the $500,000 Section 179 expensing limit permanent, by contrast, would lead small businesses to add as many as 197,000 jobs over the next decade, according to an NFIB study.

In a separate letter to Congress, the National Association of Manufacturers touted the benefits of making the R&D tax credit permanent. This break “spurs the investment in R&D that leads to new product development and increased productivity,” wrote Dorothy Coleman, NAM’s vice president for tax and domestic economic policy.

NAM also touted the benefits of now-expired tax breaks such as bonus depreciation — letting companies immediately write off 50 percent of the cost of capital equipment — and a “look-through” rule that allows U.S. manufacturers to “redeploy foreign earnings from active overseas business operations without triggering immediate U.S. tax, thus removing a competitive disadvantage faced by U.S. companies in the global marketplace.”

Like Austin, Coleman pointed out how the uncertain fate of these tax breaks is making businesses think twice about investing in growth.

“When tax extenders expire, manufacturers are left with a choice of either sidelining the types of operations and investments that help grow their companies and create jobs, or paying higher taxes in an already uncompetitive tax environment,” Coleman wrote.

Making these tax breaks permanent would bring “confidence back into investment decisions that fuel economic growth,” she wrote.

“At a minimum, a multiyear extension of these provisions would provide a critical bridge of predictability until comprehensive tax reform is enacted.”

Making these tax breaks permanent, or even extending them for a few years, would cost the federal government a lot of money, however. Unless this cost if offset by eliminating other tax breaks, federal deficits likely would increase.

The Committee for a Responsible Federal Budget estimates a package of tax breaks for businesses and low-income Americans being discussed by Congress would raise the federal government’s debt by $840 billion over the next decade.

“Congress should not close the year by rushing through budget-busting legislation that increases the debt burden on future generations,” said CRFB President Maya MacGuineas.

NFIB’s Austin questions the accuracy of such cost estimates.

“We disagree with the assumption that tax incentives to stimulate the business would create a net loss in revenue,” she wrote. “More business activity would generate more revenue.”

Some conservative groups contend, however, that the 50 tax breaks that could be part of a “tax extender” package benefit only a small number of well-connected corporations. The extenders include tax breaks for Hollywood filmmakers, racehorse owners and speedway operators, an op-ed by Freedom Partners' Marc Short and Andy Koenigpointed out.

More than 1 in 10 federal lobbyists in Washington, D.C., focused on the tax extenders package in 2014, they noted
“Washington should just abandon this ill-conceived tradition,” they wrote. “Replacing extenders with lower, simpler rates would enhance American businesses international competitiveness and put more money in regular taxpayers’ pockets.”

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