Senate Takes Up Small Business Bill
Under the radar due to other priorities, the Senate has taken up its version of a small business stimulus bill. The bill combines two different small business bills that passed the House last month (one that created a lending fund and one that would provide tax breaks).
As with the House bills, the Senate version would create a $30 billion small business lending fund to provide equity to community banks. The banks in turn pay varying dividends on that equity based on how much they increase their lending to small businesses. CBO estimated (for the House bill) that the lending fund itself would cost $1.4 billion, although a press release by the Senate Finance Committee expects that the Lending Fund would raise $1.1 billion over ten years. That bill also included $2 billion for a State Small Business Credit Initiative, which is cut in half in the Senate version.
The bill also provides numerous tax incentives for small business investment, which make up the bulk of the gross cost. The bill extends "bonus depreciation", which allows businesses to deduct more capital purchases faster than under normal depreciation schedules. This is the single costliest measure, reducing revenue by $5.5 billion over ten years. A few other provisions include a 100 percent tax exclusion of capital gains that are from the sale of small business stock and an increased deduction for start-up expenditures. These two would cost about $750 million over ten years.
The bill is ostensibly deficit neutral over ten years. Like with the House bill, it includes a tightening of the cellulosic biofuels credit, which will raise $2 billion. Otherwise it relies on reducing the tax gap and a timing gimmick -- not exactly a great way to offset the costs of a bill.
The timing gimmick comes from allowing people to roll over their individual retirement accounts into Roth IRAs. This provision would actually raise about $5 billion over the next ten years since the rollovers would be taxed. However, since withdrawals from Roth IRAs are tax-free and traditional retirement accounts are not, Tax Policy Center estimates this provision would reduce revenues by $15 billion (in present value) through mid-century.
The House was able to pay its small business bills in a fiscally responsible and non-gimmicky manner. We should expect no less from the Senate.
See stimulus.org for all the other measures the government has taken to stimulate the economy.