Obama Announces Tax Break for Small Businesses

The White House holds a press day to reveal a bill that will help middle-income small businesses.
Business Writers
May 16, 2012

President Barack Obama today urged Congress to pass a bill that would give a 10 percent tax credit to small businesses that create new jobs or increase wages this year.

Under the White House proposal, previewed in a video address last weekend, a company would get credit against income taxes worth up to 10 percent of the increase in total 2012 wages (either salaries for new hires or raises). For example, if you raise your payroll by $1 million, you’ll see a $100,000 tax credit.

To make it more valuable for small businesses in particular, the credit is capped at $500,000. And it’s aimed at middle-income earners; the White House has limited the proposal to the top wage subject to Social Security tax, $110,000.

Aimed at the Middle Class

According to White House release outlining the tax: “Unlike the House Republican proposal, the president’s proposal ensures that companies that offer raises only to already well-paid executives would be ineligible for the tax relief.”

This credit would help nearly 2 million small businesses with employees, according to The White House. The Obama proposal also extends through 2012 the 100 percent expensing provision signed into law in December 2010. Businesses can deduct the full value of investments instead of letting them depreciate over time, a move the White House claims will put an additional $50 billion in the hands of businesses in 2012 and 2013.

The National Federation of Independent Business has called expensing a “big victory” for small business: “Bottom line, just about every small business can write-off the full amount of investments they want to make in 2010 and 2011.”

The Counter-Offer

The Republican bill would let companies with fewer than 500 employees deduct 20 percent of their income in 2012. The deduction is limited to half of cash wages paid to employees. The White House statement said the Republican bill “would cut taxes of hedge fund managers, law partners and many of the wealthiest Americans regardless of whether they employed or hired a single worker.” A Tax Policy Center analysis cited by The New York Times estimates that almost half of the benefit of the tax cut would go to people earning more than $1 million.

Obama pushed the tax cut during a lunch with Congressional leaders. Earlier in the day, he visited Taylor Gourmet, a Washington, D.C. Italian deli that added a third location with the help of a Small Business Administration (SBA) loan. With the president at the shop were SBA head Karen Mills, the owners of the sandwich shop and two other D.C.-area small-business owners (who also received SBA funding).

“I’m very pleased to hear the SBA had a useful role [for you]," the president told them, according to the pool report cited by The Hill.

Talking Turkey

Obama told reporters that SBA loans are "not going to make up for bad service or a bad product. But when you've got a great service or a great product and people are willing to work really hard, then action by government and the SBA can help give them a hand up and get them started.”

The White House also released an 87-page report outlining everything the Obama administration has done for small business, including 18 tax cuts.

Before he left the sandwich shop, the president bought a selection of sandwiches for his lunch with leaders from the House and Senate.

“I’m going to offer them some hoagies,” Obama said.

For himself, the president chose a 12-inch “Spruce Street”: roast turkey, prosciutto, roasted red peppers and sharp provolone. Cost: $9.50, plus tax.

Photo credit: Getty Images