Small Business to Obama: Where Are Our '18 Tax Cuts?'


On the campaign trail, President Obama continues to mention the “18 tax cuts” provided to small business during his term. And many business owners are asking if they somehow missed the boat on this cash. The Obama campaign provided with the following break-down of the 18 cuts.

1.       Temporary increase in limitations on expensing of certain depreciable business assets. This increased the maximum amount small businesses could expense to $250,000 from $125,000 in 2009. Part of the American Recovery and Reinvestment Act.

2.       A five-year carryback of operating losses for small business. This extended the net operating loss carryback period from two years to up to five years for businesses suffering current economic hardships, allowing them to recover taxes from previous years. Part of the American Recovery and Reinvestment Act.

3.       Exclusion of 75% of small business capital gains from taxes. Part of the American Recovery and Reinvestment Act, and excluded 75% of capital gains from the sale of certain small business investments held for more than five years.

4.       Reducing estimated tax payments in 2009 for certain small businesses. Also part of the American Recovery and Reinvestment Act, which permitted small businesses to reduce their estimated payments to 90% of the previous year’s taxes, rather than 110%.

5.       Temporary reduction in recognition period for built-in gains tax. This reduced the holding period for corporations converting to S-Corporations from ten to seven years for sales occurring in 2009 and 2010. This was also a part of the American Recovery and Reinvestment Act.

6.       Special allowance for certain property acquired in 2009. Businesses were allowed to write off the cost of their investments more quickly, allowing up to 50% deductions in the first year for investments made in 2009. Also a part of the American Recovery and Reinvestment Act.

7.       Payroll tax forgiveness for hiring unemployed workers. Under the HIRE Act, employers who hire unemployed workers in 2010 could qualify for a 6.2% payroll tax inventive. This exempts them from their share of Social Security taxes on wages paid to these employees after March 18, 2010.

8.       Credit for employee health insurance expenses. Under Obamacare, this credit cover up to 35% of a small business’ health insurance costs. This increases to 50% in 2014.

9.       Temporary exclusion of 100% of gain on certain small business stocks. The JOBS Act of 2010 eliminated capital gains taxes on the sale of certain small-business investments, held for more than five years.

10.   Increasing expensing limitations for 2010 and 2011. In the JOBS Act, the amount of investments that businesses would be eligible to immediately write off increased to $500,000 and raised the level of investments at which the write-off phases out to $2 million. Prior to the bill the write-offs would have been $250,000 in 2010 and $25,000 in 2011.

11.   Extension of 50% bonus depreciation. In the JOBS Act of 2010, Obama extended a recovery act provision for 50% bonus depreciation through 2010.

12.   New deduction for health-care expenses for the self-employed. Also in the JOBS Act of 2010, on that year’s taxes, the self-employed and their families were able to deduct the cost of health insurance.

13.   Relief and simplification of cell phone tax deductions. The use of cell phones can be deducted without extra documentation, in the JOBS Act of 2010.

14.   An increase in the deduction for entrepreneurs’ startup expenses. The JOBS Act of 2010 temporarily increased the amount startups could deduct from their taxes in 2010 from $5,000 to $10,000 with a phase-out threshold of $60,000 in expenditures.

15.   General business credits of eligible small businesses for 2010 carried back five years. In the JOBS Act of 2010, certain businesses were able to carry back their general business credits to offset five years of taxes, and the Alternative Minimum Tax.

16.   Limitations on penalties for errors in tax reporting.  The Administration said these penalties disproportionately affect small business, and in the JOBS Act, limitations on these penalties were changed from a fixed dollar amount to a percentage of the tax benefits from the transaction.

17.   100% expensing on certain business’ assets in 2011. In Obama’s 2010 tax deal, businesses were temporarily allowed to expense all investments in 2011.

18.   Wounded warriors and returning heroes tax credits. In the Vow to Hire Heroes Act of 2011, new hiring tax credits of 40% of the first $6,000 of wages (up to $2,400) for employers who hire veterans who have been unemployed for at least four weeks. Also a new credit of 40% of the first $14,000 of wages (up to $5,600) for employers who hire veterans who have been unemployed for longer than six months.”

William McBride, chief economist for the nonpartisan Tax Foundation, said that many of these cuts are actually credits and deductions.  The reason they have been overlooked is because they fail to make a dent in the tax burden for small businesses, he said.

“The biggest effect is that they complicate the tax code, because they are mainly, technically, tax expenditures,” McBride said. “They are small, special interest things that aren’t broadly applicable.”

One example of such an expenditure is Obama’s making permanent and refundable the tax credit for renewable electricity.

“This is technically a tax expenditure, and precisely complicates the code,” McBride said.

By complicating the code, small businesses end up spending money on lawyers and accountants, and less on hiring and expansion.

“This is not the right way to incentivize investment,” he said. “Many of them are mainly arcane as well.”

John Arensmeyer, president of the Small Business Majority, said many of the cuts are expired and don’t cover the small business sector in its entirety.

“They’re targeted to certain sectors and people,” he said. “For us, these are examples of the ways the government can be helpful. They’re not exhaustive, but targeted ways of doing this, rather than cutting taxes for the top 3% of earners.”

He also said the president’s proposals to make permanent the payroll tax cuts, for example, have not been passed due to a gridlocked Congress.

“He got a lot through in the first two years, but hasn’t been able to get anything through in the last two years,” Arensmeyer said.

The one beneficial tax break McBride said he believes is helping boost small businesses budget is the accelerated depreciation provision, which allows businesses to write off their expenses this year rather than allowing them depreciate over the next few years.

“That is a big deal, and isn’t nickel-and-diming them,” he said. “This is worth the effort and directly leads to immediate investment.”

Ray Keating, chief economist for the Small Business & Entrepreneurship Council, said the president is misleading voters by referring to these tax cuts as if they are permanent things that “small businesses can count on today.”

“The temporary, highly-targeted nature of these, don’t apply to most businesses,” Keating said. “Many are gone, and some were not very useful to the average small business owner.”

The tax increases the president is proposing for those earning more than $250,000 annually trump any cuts on this list, he said.

“If he was so concerned with small businesses, he wouldn’t be talking about raising tax rates on successful entrepreneurs, or investors with the capital entrepreneurs need,” Keating said.