Small Business Tax Items Get Bogged Down in Controversial Spending Program
WASHINGTON – Senator Chuck Grassley said he voted today against another controversial government program that harms the good done by broadly supported small business tax relief, most of which he authored, in a bill passed by the U.S. Senate.
“Since the debate on this bill started, the Democratic leadership has been more interested in scoring political points than actually providing relief to small business, starting with a controversial lending provision to create a taxpayer-funded $30 billion bailout fund, or a mini-TARP,” Grassley said. “It’s just like the big TARP program that’s been badly mismanaged, and even Elizabeth Warren, the head of the TARP oversight panel, expressed skepticism that the fund would be effective in increasing small business lending and that it would even encourage ‘banks to make loans to borrowers who are not creditworthy.’ The taxpayers have had enough of that kind of thing from Washington.”
Grassley also said that the majority leader, Senator Reid, “ran roughshod” over the democratic process by refusing a reasonable and fair amendment process with this legislation.
"The Democratic leadership flat-out blocked my amendment, as it has twice already this year, to restore the biodiesel tax credit. At least 20,000 jobs in biodiesel have been lost since congressional leaders let this tax credit lapse at the end of last year. If the Senate would act today to restore this non-controversial credit, those jobs would return immediately,” Grassley said. “The bill also adds another new 1099 reporting requirement. This contradicts the bi-partisan support for repealing the onerous 1099 reporting requirements enacted in the health care bill earlier this year.”
Of the overall small business bill passed today, Grassley said, “There is a lot of tax relief in this bill that 80 or 90 senators support, and most of it comes from the bill (S.1381) I introduced in June 2009, which I want to see passed. But there was no reason or need to hold those broadly supported initiatives hostage to another big government spending program that the experts say would be another controversial and potentially ineffective taxpayer-funded program in Washington.”
Three documents are below:
- The floor statement Grassley made this morning about his biodiesel tax credit amendment. Watch the video here.
- The floor statement Grassley made last night about the small business bill passed today.
- A June 2009 news release describing the comprehensive small business tax relief bill that Grassley introduced (S.1381), which was most of the small business tax relief in the bill passed today.
Floor Statement of Senator Chuck Grassley
Grassley Amendment to Extend the Biodiesel Tax Credit
Thursday, September 16, 2010
Mr. President, we have a tax bill before us that's supposed to help small business because small business creates 70% of the new jobs. The President says that. I think you've got to look at the background of the high unemployment rate, particularly why it's staying up there. Not why it got up there, but why is it still there?
I spoke last night about a lot of uncertainty that comes because of the cap-and-trade, the bank regulatory reform bill, the health care reform bill, the biggest tax increase in the history of the country coming up in fall if we don't intervening and prevent the biggest tax increase, and a lot of other issues out there that just tell us how uncertain it is what Congress is going to do and that uncertainty keeps the entrepreneurs of America from opening up and creating jobs.
If you want to quantify how -- how they're tight fisted about the situation right now, the last figure I saw was about $2.1 trillion in the treasuries in the major corporations of America, and they aren't making any money by storing that cash. But they don't know what the future -- they don't know what sort of a future this Congress is going to give them so they're just very guarded on any moves they make.
Then we have things like shutting down all the oil drilling, unemploying tens of thousands of people. Then we have what I'm going to visit with you about, and that’s the fact that we didn't pass the biodiesel tax credit on December 31st, last year, when it sunset. That industry is shut down and 20,000 jobs lost.
It's kind of ironic to me that we spend weeks on a bill that's before the Senate, as legitimate as it is, to create jobs in small business when, quite frankly, there's a lot of negative things going on here in the Congress of the United States that causes people to be laid off, or because of uncertainty, not to be hired back.
So, I want to speak about the biodiesel industry. As we're faced today with a 9.6% unemployment rate, I have a solution that will create 20,000 jobs almost overnight.
That solution is to extend the biodiesel tax credit today.
This tax credit expired December 31, 2009, and this Democratic controlled congress has failed to extend it; even though on several occasions I and other members on this side of the aisle have taken action in that direction.
The Democratic leadership claims, as the President does, that they want more green jobs. I'm in favor of that. I'm the author of the wind energy tax credit, as an example. I've been a backer of ethanol. I've been a backer of biodiesel and this biodiesel tax credit. So there are plenty of opportunities to show that we on this side of the aisle support the President wanting to create green jobs.
If the President and the Democratic leadership want to do that, they haven't acted to prevent the loss of green jobs in the biodiesel industry. The biodiesel industry has lost tens of thousands of jobs as a result of this neglect. It would be nice if the Democratic leadership rhetoric met with reality.
I have twice sought to have the biodiesel tax credit simply passed through the Senate by unanimous consent. However, both times my request was objected by those on the other side of the aisle.
Meanwhile, now, these biodiesel plants in Iowa and throughout the country continue to lay off workers. In fact, most of them are just plain shut down because the Democratic controlled Congress has not extended the biodiesel tax credit.
I made a speech in December when we were on the health care reform bill and said, “can't we find some time to pass these tax extenders so that we don't let them lapse and have all this question mark?”
Now, that's nine months ago. Somehow we thought last December since Congress hadn't been in session since 1895, we just ought to be in session once in 115 years, or we just had to pass this health care reform bill before the end of the year because it takes effect by 2014.
We couldn't find a little bit of time to keep at least 20,000 people employed in the biodiesel industry.
We asked for those unanimous consents and we didn't get it. So these workers are laid off because the Democratic controlled Congress has not extended this tax credit.
This is a simple and noncontroversial tax extension that will likely reinstate 20,000 or more jobs nationwide and at least 2,000 within my state of Iowa. By the way, this is not controversial and there are 71 other tax provisions that expired December 31, 2009. I don't know that any of those are controversial.
So, the biodiesel industry has lost its jobs. They have fallen victim to a tactic used by a Democratic leadership to hold this noncontroversial tax provision hostage in an attempt to advance political objectives. Just last February, I worked out a bipartisan compromise on tax extenders, all of them, with Chairman Baucus to extend the expired tax provision, including biodiesel.
However, the Senate Democratic leadership decided to put partisanship ahead of the job security for tens of thousands of biodiesel workers by destroying the compromise that Chairman Baucus and I agreed to.
So I am here again to try to put tens of thousands of people back to work producing clean and renewable fuel that everybody in this country congress says that they support.
There is a difference between the biodiesel tax credit and the other tax provisions in the tax extender bill that has stalled in the Senate. The failure to extend the biodiesel tax credit before it expired has ground the industry to a halt. Biodiesel is now more expensive than gasoline. Gasoline stations know that they can't sell biodiesel, so gas stations don't buy it and biodiesel producers have therefore stopped producing biodiesel because they have nobody to sell it to; consequently the layoffs.
While the other tax provisions are important, most are not as time sensitive as biodiesel because they are not transactional tax incentives like the biodiesel tax credit, but instead are based on taxable year.
Unfortunately, now it's clear that the larger extenders bill has stalled for the time being. We need to pass the biodiesel tax credit separately. The last time I sought unanimous consent which was the second time that I did it, one of my colleagues on the other side of the aisle objected, and in the objection said something like the biodiesel tax credit was part of a larger extenders bill that they were working on.
Now that the tax extenders bill is stalled, the Senate needs to pass the biodiesel tax credit by itself. I ask my colleagues to vote yes, to waive the rules and put 20,000 biodiesel workers back to work. So, Mr. President, I move to suspend rule 22, paragraph 2, for the purposes of proposing and considering amendment 4433, which is at the desk.
Floor Statement of Senator Chuck Grassley
Small Business Bill
Wednesday, September 15, 2010
I’d like to speak for a few minutes about the pending legislation, the Small Business Jobs Act of 2010. For more than a year now the mantra of my colleagues on the other side of the aisle has been JOBs, JOBs, JOBs. Unfortunately, the only jobs the policies of my colleagues on the other side of the aisle have created are government jobs.
The legislative fixes proposed by the other side have fallen short in creating private sector job growth. Unemployment reached a high of 10.1% in October of 2009.
The Administration promised that unemployment would not go above 8% if we would enact their $800 billion stimulus bill. Moreover, they asserted that 90% of the jobs would be in the private sector.
The unemployment numbers have come down from their high in October, but this has not been the result of robust hiring in the private sector. To the contrary, many people are simply no longer counted as being unemployed because they have stopped looking for work. For those who did find work, many found work with the U.S. Census Bureau helping to complete the 2010 census. The unemployment rate reached a low of 9.5% in July, but once again has ticked up to 9.6% as 114,000 temporary census jobs ended.
While those who put their faith in the stimulus package believed that this summer would become known as 'Recovery Summer' due to all the stimulus projects under way, it actually has ended in what a National Public Radio (NPR) story termed an “Economic Pothole.”
To be fair, the private sector employment number has inched up slightly in the past few months. For August, the Bureau of Labor Statistics reported that private sector employment payroll edged up by 67,000. However, the problem is that around 150,000 jobs need to be added each month just to keep up with the growth in population. So basically, by adding 67,000 jobs we are treading water too slowly to keep our heads above water.
Moreover, as pointed out in the September issue of the National Federation of Independent Business’ (NFIB) Small Business Economic Trends, 45,000 of those 67,000 private sector jobs were in education and health care. These jobs are heavily dependent on government spending. That means these are not typical small business jobs on Main Street.
It is clear that small businesses remain pessimistic about the economy and are hesitant to hire new workers. According to NFIB’s most recent survey:
- A net negative 1 percent of business owners plan to create new jobs in the next three months;
- A net negative of 8% of business owners expect the economy to improve.
- Only 4% of business owners said it was a good time to expand
- a net negative 30 percent of owners reported higher earnings
This last component is especially important for businesses when it comes to hiring new employees, since businesses need to know that the revenue generated from the additional employee will exceed the cost.
Given the current unemployment rate, it is not surprising we are once again looking at ways to create jobs.
The question remains, are we going to continue to look to the government to be the job creator or are we going to realize that job creation and real economic growth come from the private sector?
The bill before us appears to recognize the importance of the private sector -- in particular, the importance of small business and entrepreneurs in getting our economy back on track and getting the employment numbers to move in the right direction.
I have been beating the drum for some time now that if we want to get our economy back on track, we need to focus on small business. After all, small business is responsible for creating 70% of the jobs in our economy.
During the debate on the $800 billion stimulus bill, I pointed out it contained too little in terms of provisions aimed at small business. In all, less than one-half of one percent of the stimulus bill was tax relief for small business.
Unfortunately, my concern that the stimulus bill provided too little relief to small business has proved correct. Since the stimulus bill was signed into law, small business has been hemorrhaging jobs.
According to ADP National Employment data, since the stimulus was enacted, small businesses, which are those with fewer than 500 employees, have lost a net amount of 2.6 million jobs.
During this same time large businesses, which are those with over 500 employees, lost a net amount of 716 thousand jobs. According to this data, small businesses have accounted for nearly 80 percent of the decline in employment since the stimulus bill was signed into law.
With the consideration of the small business package before us today, I hope that this body is finally starting to get serious about tackling unemployment through a true “jobs” bill.
Compared to previous stimulus or jobs bills promoted by the majority, this small business bill has a rather modest cost with the tax provisions totaling around $12 billion.
It is targeted at job creation by providing small businesses incentives to invest in new equipment, expand their operations and ultimately hire new employees. The bill includes provisions that would:
Encourage businesses to invest in new equipment and real property by increasing the amount of capital expenditures that small businesses can expense. For equipment the amount that can be expensed is increased to $500,000 and for real property it is $250,000. Moreover, it encourages investment by providing additional first-year bonus depreciation.
It promotes entrepreneurship by increasing the amount allowed as a deduction for start-up expenditures.
It increases access to capital by allowing 100 percent of gain from investment in qualified small business stock to be excluded from income. It also takes the general business credits out of the alternative minimum tax for those sole proprietorships, flow-throughs and non-publicly-traded C corporations with $50 million or less in annual gross receipts.
It also increases access to capital by extending the one-year carryback for general business credits to a five-year carryback for small businesses.
Finally, the bill promotes small business fairness by limiting harsh penalties that have been imposed on small business by the IRS and equalizing the tax benefits for health insurance that self-employed individuals may receive to those received by employees.
In regard to the Small Business Administration provisions, I strongly support many of the bipartisan provisions included in the bill. This legislation would increase small business lending by lowering small business loan program fees and raising loan guarantee and lending limits. Specifically, this bill extends the fee reductions and eliminations for the Small Business Administration’s 7(a) and 504 programs and the 90% loan guarantee limit for the SBA’s 7(a) program.
I’m pleased that these well-established, effective measures have been included in this bill.
Raising the 7(a) guarantee rate and reducing lenders’ and borrowers’ fees in the 7(a) and 504 loan programs have been enormously successful. These modifications, which expired in May, have led to a significant increase in lending capacity and access to capital.
I am a supporter, and in fact have been a leader of many of the bipartisan small business provisions in the current small business package. I’m an original cosponsor of S.3604, stand-alone legislation introduced by Senator Snowe, the Ranking Member of the Committee on Small Business and Entrepreneurship, which would extend the same Small Business Administration lending provisions.
Additionally, many of the small business tax incentives included in the small business package were taken from legislation I introduced last year, the Small Business Tax Relief Act of 2009. Of course there are differences and additional provisions that I would have liked to be included. But, as with any piece of legislation in the Senate, there is a need to compromise if you want to get anything done.
My bill generally would have made the small business tax provisions permanent. I believe this would have provided small businesses with certainty and promoted job creation over the short-run and the long-run. However, the Senate small business package generally only makes the tax provisions applicable for a one-year period.
I also would have liked to have seen an additional provision from my bill included in the final package. This provision would have provided small businesses with a 20% deduction off of their small business income.
It is unfortunate that this provision was left out. This was the largest and most important provision in my entire bill.
However, in all, the tax provisions included in the Senate small business package provide real relief to small business. They generally have support from members on both sides of the aisle. In fact, you would have thought this small business bill would have been a slam dunk. However, the Democratic leadership has used the small business bill as a political football to score political points.
Majority leader Reid refused to allow the small business bill to be considered under regular order. The Majority leader filled the amendment tree, thereby limiting amendments that could be offered.
The Democratic Leadership and the Administration then proceeded to blame Republicans for blocking relief for small business. This is despite the fact that the Democrats were unable to get their own members in line on the small business package. It still remains unclear whether the Democrats in the House, with their large majority, will pass the small business bill should it pass the Senate.
Moreover, the waters of the small business package were further dirtied by the inclusion of a controversial lending provision that would create a $30 billion lending fund. This fund is designed to provide billions of taxpayer dollars to banks for the purpose of making loans to small businesses.
To me, and to many experts, the fund resembles the TARP bailout program which has been badly mismanaged.
Elizabeth Warren, head of the TARP congressional oversight panel, expressed skepticism that the fund would be effective in increasing small business lending. She stated that, “such a fund runs the risk of creating moral hazard by encouraging banks to make loans to borrowers who are not creditworthy.''
The Special Inspector General of TARP stated that, “in terms of its basic designs, its participants, its application process, and, perhaps its funding source from an oversight perspective, the [small business Lending Fund] would essentially be an extension of TARP's Capital Purchase Program.”
There’s also disagreement about the cost of the program. Proponents argue that the lending fund will raise $1.1 billion. However, the Congressional Budget Office has indicated that if you score the fund on a fair value basis, the program would score as a cost to taxpayers of $6.2 billion. The CBO has indicated that the “fair-value” basis is a more comprehensive measure of the cost than estimates done on a cash basis.
Many members in this body voted for the Emergency Economic Stabilization Act in 2008 because we were led to believe that our economy was on the brink of failure.
We were told that the Treasury Department would purchase toxic assets, but after its passage, the executive branch changed course and picked winners and losers on Wall Street.
We shouldn’t be fooled again by the same officials at the Treasury who have mismanaged TARP and been less than transparent with the American people about how their money has been spent.
I compliment my friend, Chairman Baucus, for diligently pressing the tax proposals in this bill.
There are many good things in this bill, but I believe it could have been better.
Unfortunately, the Democratic leadership has been more interested in scoring political points than actually providing relief to small business.
If the majority was actually interested in passing small business relief, a small business package could have been put together that would have gathered 80, 90, or more votes. But, instead the majority leader filled the tree, prohibiting amendments from being offered to improve the bill.
The small business fund in the bill just doesn’t have the safeguards in place to ensure that recipients are credit worthy or that the taxpayers will be made whole in the end.
Should this bill be signed into law, I will do my part to make sure that the implementation is in the best interest of taxpayers as well as small businesses.
I yield the floor.
For Immediate Release
Friday, June 26, 2009
Grassley Introduces Bill to Strengthen Job-creating Abilities of Small Businesses
WASHINGTON – Sen. Chuck Grassley, ranking member of the Committee on Finance, late Thursday introduced a bill to strengthen small businesses by lowering their tax burden so they can continue to create 70 percent of all net new jobs, and ideally more.
“My bill will leave more money in the hands of small business owners so they can hire more workers, keep paying the salaries of their employees, and make additional investments that will lead to new jobs,” Grassley said. “Unfortunately, the White House seems to see a lot of small business owners as a cash cow for other priorities and wants to raise their taxes. My point is, if we raise taxes on the one segment of the economy that creates the majority of new jobs, we’ll be in even worse economic shape than we are now.”
Grassley said the tax relief is especially important, given an expensive stimulus bill that has had little to no measurable effect on job retention or creation, despite predictions to the contrary from the White House and congressional sponsors. A floor statement from Grassley describes the lackluster effect of the stimulus bill on job creation. The text of this floor statement is found below this news release.
Grassley’s Small Business Tax Relief Act of 2009 includes provisions that would:
- Increase the amount of capital expenditures that small businesses could expense from $250,000 to $500,000. This would encourage businesses to invest in new equipment.
- Allow more small C corporations to benefit from the lower tax rates for the smallest C corporations.
- Take the general business credits out of the Alternative Minimum Tax (AMT) for those sole proprietorships, flow-throughs and non-publicly-traded C corporations with $50 million or less in annual gross receipts.
- Extend the 1-year carryback for general business credits to a 5-year carryback for small businesses.
- Provide a 20 percent deduction for flow-through business income for small businesses, which are defined as flow-through entities with $50 million or less in annual gross receipts.
- Lower the potential tax burden when a C corporation becomes an S corporation. Under current law, there is no tax on built-in gains of assets within a C corporation that converts to an S corporation if those assets with built-in gain are held for 10 years by the S corporation. The stimulus bill reduced this 10-year period down to 7 years for sales of assets with built-in gain that occur within 2009 and 2010. The Grassley bill reduces this time period to 5 years for all S corporations that have converted from a C corporation.
- Expand the net operating loss provision contained in the stimulus bill. Current law provides that net operating losses from any size business may be carried back 2 taxable years before the year that the loss arises and carried forward twenty years. The stimulus bill amended the carryback provision by expanding the carryback from 2 years to 5 years if a small business had gross receipts of $15 million or less. The Grassley bill expands this $15 million or less requirement so that small businesses with $50 million or less in gross receipts can get the benefit of the 5-year net operating loss carryback.
“I hope this bill gets bipartisan support,” Grassley said. “Job creation is a bipartisan issue and really should be a non-partisan issue.”
Grassley, an Iowa Republican, is ranking member and former chairman of the Committee on Finance, which writes all tax policy in the Senate.
Following are the text of Grassley’s floor statement and a more bill detailed bill summary.
Floor Statement of Senator Chuck Grassley
Effectiveness of Stimulus Job Creation and Introduction of Small Business Bill
Thursday, June 25, 2009
Mr. President, President Obama, in his press briefing this past Tuesday, June 23, 2009, made the following statement regarding his assessment of the first four months of the American Recovery and Reinvestment Act: “I am not satisfied with the progress that we’ve made.” I could not agree more with President Obama’s assessment. Thus far, the $787 billion American Recovery and Reinvestment Act has fallen short on virtually every one of its advertised effects. In the abbreviated debate leading up to the consideration of this bill, we constantly heard the mantra from my friends on the other side: JOBS, JOBS, JOBS! This stimulus bill was supposed to create jobs, jobs, jobs, but in the four months since the bill’s passage, there are still no jobs in sight.
The architects of this bill made several bold claims in projecting the job effects of the $787 billion stimulus bill. First, they said that its passage would keep the unemployment rate from exceeding 8 percent. Second, they said it was going to create or save 3 to 4 million jobs. And third, they said that 90 percent of the new jobs created would be in the private sector. So far, in all three of these areas, the actual effects of the stimulus bill have not lived up to the hype. Let’s examine each of these areas one by one.
First, the stimulus bill was supposed to keep unemployment at or below 8 percent. In fact, the Administration projected that in the absence of stimulus, the unemployment rate would peak at around 8.8 percent. However, four months into this program, the unemployment rate stands at 9.4 percent and rising—higher than the Administration projected it would be in the absence of stimulus.
Just listen to President Obama’s comments from his June 23rd press briefing to see which direction the unemployment rate is headed: “I think it’s pretty clear now that unemployment will end up going over 10 percent, if you just look at the pattern, because of the fact that even after employers and businesses start investing again and start hiring again, typically it takes a while for that employment number to catch up with economic recovery. And we’re still not at actual recovery yet. So I anticipate that this is going to be a difficult, difficult year, a difficult period.”
When asked how high he thought the unemployment rate would go, President Obama responded, “I am not suggesting that I have a crystal ball. Since you just threw back at us our last prognosis, let’s not engage in another one.” Once again, I have to agree with President Obama’s assessment.
As the unemployment rate continues to go up, that means job numbers continue to go down, which brings me to my next point: The administration projected that the stimulus bill would create—or save—between 3 and 4 million jobs by the end of 2010. While we’ve got a long way to go before the end of 2010, the prospects of the stimulus bill living up to this job creation estimate seem very unlikely. Before we look at the actual job numbers for the past few months from the Department of Labor, let me discuss the source of the Administration’s projections.
In January, Christina Romer, who is now Chair of the Council of Economic Advisers, and Jared Bernstein, who is now the Chief Economist for the Vice-President, released a 14-page paper titled “The Job Impact of the American Recovery and Reinvestment Act.”
In this document, Romer and Bernstein repeatedly asserted that a package of the size discussed by the President-Elect would be expected to create between three and four million jobs by the end of 2010, which would more than meet the President-Elect’s goal of creating or saving 3 million jobs by the end of 2010. In a follow-up report in May, the Council of Economic Advisers attempted to explain how the Administration planned on measuring the number of jobs created or saved by the stimulus. This document articulated that all recipients of stimulus funds for government investment will be required to provide “recipient reports” estimating the number of jobs retained or created directly by the funds.
Then, to arrive at the total estimate of jobs created or saved by the stimulus, the job numbers from the recipient reports will be added to the Administration’s estimate of jobs created or saved through tax cuts, state fiscal relief and transfer payments. These estimates will be derived from Administration-produced multipliers and macro-economic modeling.
Sounds pretty simple, don’t you think? Unfortunately, there are some problems.
The first problem is that the most accurate part of these job estimates will be from the recipient reports, and since the stimulus bill included approximately $271 billion in government investment spending, these reporting requirements cover just over a third of the $787 billion of stimulus funding.
And while the job estimates from these recipient reports should be an accurate representation of actual jobs created by the stimulus, the Administration even admits that “there will likely be inconsistencies and measurement error across the individual reports.”
This leads us to the second problem: for the other two-thirds of the bill, in the Administration’s own words, “There is no mechanism available for collecting data on actual job creation from these parts of the Act.” So, for two-thirds of the bill, the job estimates are basically going to be guesswork from the Administration based on mathematical formulas.
Since President Obama’s “First 100 Days” address on April 29, 2009, we have heard plenty about the 150,000 jobs that have been created or saved so far by the stimulus.
As I’ve pointed out, it is impossible to verify these numbers with any degree of certainty, and the Administration can’t even give an estimate of how many of the 150,000 jobs were created and how many were saved.
What we can verify are the actual job numbers produced on a monthly basis by the Department of Labor. According to the Department of Labor, in the three full months (March, April, and May) following the enactment of the stimulus bill, the U.S. economy has lost over 1.5 million jobs.
In the first five months of 2009, the U.S. economy has lost 2.9 million jobs. These are the painful numbers that really matter.
As Jared Bernstein, Chief Economist for the Vice President, said on June 8, 2009, “Most importantly from the perspective of American families, the nation’s employers are still shedding jobs on net.”
So, the advertised effect of the stimulus on unemployment was clearly wrong, and the job claims resulting from the stimulus are unverifiable. Now, how about the claim suggesting that 90 percent of the jobs created by the stimulus will be in the private sector?
To be clear, this claim was first made in Romer and Bernstein’s January report, and the President himself has repeated this assertion. Unfortunately, this projection—like the first two—is missing the mark by a long shot.
Let’s look at the actual data from the Department of Labor once again. In the first three months since the stimulus bill has been the law of the land, the private sector has lost nearly 1.6 million jobs. In those same three months, government payrolls have actually expanded by 81,000 jobs. Similarly, in the first five months of 2009, while the private sector has lost over 3 million jobs, the government has gained 96,000 jobs.
While I am encouraged to see at least one sector of the economy experiencing job gains, I don’t expect that the Administration’s projection of 90 percent of stimulus jobs being in the private sector will be realized. The Administration has promised that 600,000 additional public sector jobs will be created or saved this summer. While an increase of 600,000 government jobs would certainly be a positive development if it comes to pass, it does raise concerns as to whether the government will be the only winner from the stimulus bill.
My point today, Mr. President, is not to berate the Administration or those who voted for this bill. My point is, first, to note the conspicuous absence of job gains in our economy following the stimulus, and second, to bring our focus back to the source of 70 percent of net new jobs over the past decade—the engine that drives the U.S. economy. Of course, I am talking about America’s small businesses.
America’s small businesses have been suffering during this recession. If you go back to your states frequently, like I do, you’ll hear about it directly. A few months ago, Senators Landrieu and Snowe held a hearing on the credit crunch hitting small business. They found that big banks have been cranking down on lending to small businesses.
Another very good source of answers about the environment of small business is found in the monthly survey of small business. This survey is published by the National Federation of Independent Business (“NFIB”).
NFIB is the largest small business organization. NFIB has been conducting these surveys for 35 years.
NFIB’s membership includes hundreds of thousands of small businesses all across America. You can find the survey on NFIB’s website at http://www.nfib.com/Portals/0/PDF/sbet/sbet200906.pdf.
I’d encourage every member to check out the June 2009 survey.
The survey shows some extremely disturbing trends. On credit availability, small businesses are getting squeezed very hard. The availability of loans has fallen off a cliff since late 2007 and is at its lowest point since the recession period of 1980 to 1982.
This credit crunch and other factors have contributed to NFIB’s index of small business optimism falling well below average. According to the survey, small business owners have become extremely pessimistic in the last couple of years. What you see here is the attitude of the decision makers in small business America.
Those are the decision makers for businesses that President Obama and Congress agree are the businesses most likely to grow or contract jobs. This data should concern every policy maker in this town.
While those two sets of data are bad, it doesn’t get any better when you look at small business hiring plans. Another question on the survey asks the small business owner whether he or she plans to expand or contract employment over the next three months. The survey results show small business activity contracting tremendously, and the overall small business employment numbers tell the same story.
I must say that the President’s recent efforts to increase lending to the small business sector are commendable. The center piece of his small business plan will allow the federal government to spend up to $25 billion to purchase the small-business loans that are now hindering community banks and lenders. Unfortunately, that’s a drop in a very empty bucket.
Remember, colleagues, that small business accounts for about half of the private sector.
Moreover, the positives that will come to small businesses from this relatively small package of loans—which will ultimately have to be paid back—will be heavily outweighed by the negative impact of the President’s proposed tax increases. Helping small businesses get loans just to take that money back in the form of tax hikes is not wise.
I now want to turn to those aforementioned tax hikes on small businesses that President Obama and my colleagues on the other side of the aisle have proposed. I certainly understand that small business is vital to the health of our economy. The President and I agree that 70 percent of new private sector jobs are created by small businesses. However, where we differ is that I believe small businesses’ taxes should be lowered, not raised, to get our economy back on track.
In 2001 and 2003, Congress enacted bipartisan tax relief designed to trigger economic growth and create jobs by reducing the tax burden on individuals and small businesses. This included an across-the board income tax reduction, which reduced marginal tax rates for income earners of all levels, a reduction of the top dividends and capital gains tax rate to 15 percent, and a gradual phaseout of the estate tax.
Unfortunately, like many of the other provisions enacted in 2001 and 2003, these tax relief measures are scheduled to expire at the end of 2010.
Some have referred to this bipartisan tax relief as “the Bush tax cuts for the wealthy” and have suggested that the tax relief provided for higher-income earners should be allowed to expire. However, this tax relief was bipartisan and provides tax relief for all taxpayers. The President and my colleagues on the other side of the aisle have proposed increasing the top two marginal tax rates from 33 percent and 35 percent to 36 percent and 39.6 percent, respectively.
They have also proposed increasing the tax rates on capital gains and dividends to 20 percent, and providing for an estate tax rate as high as 45 percent and an exemption amount of $3.5 million.
Also, the President has called for fully reinstating the personal exemption phaseout, or PEP for short, and the limitation on itemized deductions, which is known as Pease. Under the 2001 tax law, PEP and Pease are scheduled to be completely phased out in 2010. However, like other provisions in the law, PEP and Pease are scheduled to come back in full force in 2011 should Congress fail to take further action.
With PEP and Pease fully reinstated, individuals in the top two rates could see their marginal effective tax rate increased by 20 percent or more. For example, a family of four that is in the 33 percent tax bracket in 2010 could pay a marginal effective tax-rate of 41 percent after 2010 – or even more if they had more children – because of PEP and Pease.
Some of my colleagues on the other side of the aisle have defended this proposal by claiming they will only raise taxes on “wealthy” taxpayers who make over $200,000 a year. For the vast majority of people who earn less than $200,000, raising taxes on higher earners might not sound so bad.
However, this means that many small businesses will be hit with a higher tax bill. These small businesses happen to at least 70 percent of all new private sector jobs in the United States.
These small businesses that are taxed as sole proprietorships, S corporations, and partnerships—including LLCs—whose owners make over $200,000, or $250,000 if married, would get hit with the President’s proposal to raise the top two marginal tax rates.
In addition, there are just under 2 million C corporations that are not publicly traded, and all C corporations are subject to double taxation. To the extent these C corporations’ owners that make over $200,000, or $250,000 if married, pay themselves a salary, they would get hit with the tax increase on the top two marginal tax rates proposed by the President.
Also, any owners of C corporations that receive dividends or realize capital gains and make over $200,000, or $250,000 if married, would pay a 20 percent rate on these dividends and capital gains after 2010 under the President’s tax hike proposals, instead of paying the current law rate of 15 percent.
According to NFIB survey data, 50 percent of owners of small businesses that employ 20-249 workers would fall in the top two brackets. According to the Small Business Administration, about two-thirds of the nation’s small business workers are employed by small businesses with 20-500 employees.
Do we really want to raise taxes on these small businesses that create new jobs and employ two-thirds of all small business workers?
With these small businesses already suffering from the credit crunch, do we really think it’s wise to hit them with the double-whammy of a 20 percent increase in their marginal tax rates?
Newly developed data from the Joint Committee on Taxation demonstrates that 55 percent of the tax from the higher rates will be borne by small business owners with income over $250,000. This is a conservative number, because it doesn't include flow-through business owners making between $200,000 and $250,000 that will also be hit with the Budget's proposed tax hikes.
If the proponents of the marginal rate increase on small business owners agree that a 20 percent tax increase for half of the small businesses that employee two-thirds of all small business workers is not wise, then they should either oppose these tax increases, or present data that show a different result.
I will also fight for a lower estate tax rate and a higher estate tax exemption amount to protect successful small businesses and farmers. In a time when many businesses are struggling to stay afloat, it does not make sense to impose additional burdens on them by raising their taxes.
Odds are, they’ll cut spending. They’ll cancel orders for new equipment, cut health insurance for their employees, stop hiring, and lay people off. Instead of seeking to raise taxes on those who create jobs in our economy, policies need to focus on reducing excessive tax and regulatory barriers that stand in the way of small businesses and the private sector making investments, expanding production, and creating sustainable jobs.
As the current ranking member of the tax writing Finance Committee, you can be sure that I will continue to fight to prevent a dramatic tax increase on our nation’s job engine – the small businesses of America.
This includes working to protect small businesses from higher marginal tax rates, an increase in the capital gains and dividends tax rate, and an increase in the unfair estate tax rate that will penalize the success of small businesses and farmers who would like to pass on their gains to the next generation.
In fact, today I have introduced a bill to lower taxes on these job-creating small businesses.
My bill contains a number of provisions that will leave more money in the hands of these small businesses so that these businesses can hire more workers, continue to pay the salaries of their current employees, and make additional investments in these businesses.
For instance, my bill would increase the amount of capital expenditures that small businesses can expense from $250,000 to $500,000. Also, my bill would allow more small C corporations to benefit from the lower graduated tax rates for smaller C corporations.
Another provision takes the general business credits, which are listed in section 38, out of the Alternative Minimum Tax (AMT) for those sole proprietorships, flow-throughs and non-publicly traded C-corps with 50 million or less in annual gross receipts. This provision amends section 39 to extend the 1-year carryback for general business credits to a 5-year carryback. This applies to general business credits for those sole proprietorships, flow-through entities and non-publicly traded C-corps with 50 million or less in annual gross receipts.
Another provision in my bill amends section 199 of the Internal Revenue Code, which contains the deduction for manufacturing, to provide a 20 percent deduction for flow-through business income for all small businesses, which are defined as flow-through entities with 50 million or less in annual gross receipts. Another provision in my bill deals with the situation where a C corporation becomes an S corporation. Under current law, there is no tax on built-in gains of assets within a C corporation that converts to an S corporation if those assets with built-in gain are held for 10 years by the S corporation. The stimulus bill reduced this 10-year period down to 7 years for sales of assets with built-in gain that occur within 2009 and 2010.
My provision reduces this time period down to 5 years for all S corporations that have converted from a C corporation.
Another provision in my bill expands the net operating loss provision contained in the stimulus bill. Current law provides that net operating losses from any size business may be carried back 2 taxable years before the year that the loss arises and carried forward twenty years. The stimulus bill amended the carryback provision by expanding the carryback from 2 years to 5 years if a small business had gross receipts of $15 million or less.
This provision expands that $15 million gross receipt requirement to $50 million in gross receipts so that more small businesses can qualify for this benefit.
Another provision in my bill amends section 1202 of the Internal Revenue Code to eliminate the tax on capital gains for certain start-up C corporations. The stimulus bill reduced the capital gains tax to approximately 7 percent on stock qualifying under 1202. However, President Obama has called for eliminating, not simply reducing, the tax on capital gains for these start-up businesses, and that is exactly what my provision would do.
The final provision in my bill permits a deduction for payments made under the Self-Employment Contribution Act, or SECA, at one- hundred percent of health insurance premiums that are paid by those who are self-employed.
Mr. President, we all want to see the job numbers from the Department of Labor moving in a positive direction. We all want to see the unemployment rate plummet. I firmly believe that the best way for us to do that is to prime the job-creating engine of our economy, which is small businesses. Furthermore, increasing taxes on small businesses as President Obama has proposed will destroy even more jobs.
My small business bill, if enacted, will lead to many new jobs. As opposed to the jobs President Obama argues that the stimulus bill has saved while our economy has been hemorrhaging jobs, my bill will create countable, verifiable, private sector jobs that will put people to work and get the economy moving in the right direction again.
I yield the floor.
Summary of Provisions in Senator Grassley’s Small Business Bill
This bill amends section 179 of the Code to allow small businesses to expense up to $500,000 in capital expenditures (instead of the temporary amount of $250,000 under current law). Also, this provision would increase the phaseout to $2,000,000 in capital expenditures, up from the $800,000 temporary phaseout amount. Both the expensing and phaseout amounts would be indexed for inflation beginning in 2010. The date of enactment is taxable years beginning on or after January 1, 2009.
This bill amends section 11 of the Code to move the hump in graduated rates for C corporations up to $2,000,000. The hump is designed to take away the benefits of the graduated tax rates for higher-income C corporations.
This bill takes the general business credits, which are listed in section 38, out of the Alternative Minimum Tax (AMT) for those sole proprietorships, flow-through entities and non-publicly traded C corporations with $50 million or less in annual gross receipts.
This bill amends section 39 of the Code to extend the 1-year carryback for general business credits to a 5-year carryback. This applies to general business credits for those sole proprietorships, flow-through entities and non-publicly traded C corporations with $50 million or less in annual gross receipts.
This bill amends Section 199 of the Code to provide a 20 percent deduction for flow-through business income for small businesses (defined as flow-through entities with $50 million or less in annual gross receipts).
This bill amends section 1374 of the Code. Prior to the American Recovery and Reinvestment Act, when a C corporation became an S corporation there was no tax on built-in gain if the assets with built-in gain were held for 10 years. The American Recovery and Reinvestment Act reduced this time period to 7 years for sales within 2009 and 2010. This provision reduces this time period to 5 years for all S corporations that have converted from a C corporation.
This bill amends section 172 of the Code. Current law says that Net Operating Losses (NOLs) may be carried back 2 taxable years before the year that the loss arises and carried forward twenty years. The American Recovery and Reinvestment Act amended the carryback provision, changing it from 2 years to 5 years if the small business had gross receipts of $15 million or less. This provision expands that $15 million gross receipt requirement to $50 million in gross receipts.
This bill amends section 1202 of the Code to eliminate the tax on capital gains for certain small C corporations. The American Recovery and Reinvestment Act reduced the capital gains tax to approximately 7% on stock qualifying under section 1202.
This bill amends section 162 of the Code to allow a deduction for Self-Employment Contribution Act (SECA) payments for health insurance premiums that are paid by those that are self-employed, just as self-employed individuals are provided an income tax deduction for those premiums.
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