President Pushes Small Biz Tax Credits


By Deanna C. White
On Thursday, June 8, in the wake of dismal job growth numbers and the looming economic crisis in Europe, President Barack Obama hosted a White House press conference to urge members of Congress to pass "in full" the "bipartisan" jobs plan he originally introduced in September 2011, and recent tax credits listed in his "job creating To-Do List for Congress," to put more "Americans back to work."
In addition to what Republicans quickly pounced on as his perceived gaffe that the "private sector has been hiring at a solid pace," his emphasis on layoffs in state and local government, and the flagging construction industry, President Obama targeted the small business sector's role in creating jobs and, what he called, Congress' reluctance to pass the tax breaks that would allow small businesses to hire more workers.
"Instead of just talking a good game about job creators, Congress should give the small business owners that actually create most of the new jobs in America a tax break for hiring more workers," President Obama said.

President Obama's Five-Point To-Do List for Congress

  1. Reward American Jobs ‒ Eliminate Tax Incentives to Ship Jobs Overseas
  2. Cut Red Tape So Responsible Homeowners Can Refinance
  3. Invest in a New-Hire Tax Credit for Small Businesses
  4. Create Jobs by Investing in Affordable Clean Energy
  5. Put Returning Veterans to Work Using Skills Developed in the Military
So what are some of the "tax breaks," or tax credits, the President has proposed in recent months for small businesses? Do accounting professionals agree with his assessment that these tax credits will in fact spur hiring?
In May, President Obama introduced his latest salvo in the small business hiring skirmish, proposing a 10 percent tax credit tied to new hiring. According to Megan Slack's official White House blog, "Nearly two million companies that make new hires or increase wages would receive a tax credit under the small business hiring income tax credit President Obama is calling on Congress to pass."
Slack's blog goes on to say the tax credit, the third item on President Obama's job-creating To-Do List for Congress, "would encourage more than $200 billion in new hiring and pay raises by providing a 10 percent income tax credit on wages added in 2012. The credit would be available to all companies, but would be capped at $500,000 per business to specifically spur small business hiring. And, companies that claim the credit would be able to do so on a quarterly basis, which means businesses would see tax relief sooner rather than later after making new hires."
According to the White House blog, "By providing targeted tax relief to the businesses that are expanding and making investments in their workforce, the Small Business Hiring Credit will grow the economy, create jobs, and strengthen the recovery. In fact, the Congressional Budget Office recently found that this type of targeted credit is the single most effective business tax option for boosting hiring and spurring economic growth."
But do accounting industry analysts agree?
Larry Evans, tax technical resource leader of Fargo, North Dakota-based Eide Bailly, LLP, said President Obama's proposed tax credits for new hires may have an impact on small business owners whose companies are already booming, but he is skeptical the credits will impact the majority of businesses who are currently struggling.
"If I'm a small business owner and I don't have any new or expanding orders, I probably don't have a need for new personnel; therefore, these tax credits don't mean a whole lot to me," Evans said. "If I don't have the money coming in, I can't create a job and pay for that job with tax credits."
Evans acknowlegdes all business owners want tax breaks, but in reality, because of the nature of the way any proposed tax breaks or credits are structured, many small business owners can't take advantage of them because of restrictions. For example, in the case of the Small Business Health Care Tax Credit, Evans said the benefit simply didn't work because the administrative cost of going through the calculation versus the benefit received by the client didn't make economic sense.
Evans suggests Congress and the White House look at changes to tax issues related to financing small businesses to truly reinvigorate small businesses and stimulate hiring.
"Financing small business is a major issue, and it has been curtailed over the years through various tax law changes," Evans said. "If I was in a position to do something to help small business, I would rethink the passive loss rule. A great source of financing is from investment, but if investors suffer a loss and they can't take that loss on their tax returns, they are less likely to invest."
Evans said politicians should also consider reexamining how to allow dollars held in an IRA to be invested in an operating business without the possibility to create unrelated business income.
"If I invest in an operating business in my IRA, money earned is treated as unrelated business income; therefore, I'm not likely to consider using those dollars to finance a business," Evans said. "Right now there's a big pool of IRA money sitting out there ‒ a great source of potential funding for people to invest in a small business ‒ but people are unwilling to use it because of the ultimate cost." 
Ultimately, Evans said, he believes small business owners would choose a reliable, uncomplicated, low-cost source of funding to grow their business and hire new employees over a tax credit any day.
"I think the majority of small business owners would say give me a source of funding where I don't have to go through all the red tape at the bank, and funding that I don't have to pay back immediately," Evans said. "That will increase my opportunity, my market, and my ability to hire more employees."
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