SMBs Thankful, but 'Let Down' by Stimulus Package

Small business groups are generally supporting the emergency economic stimulus package working its way through Congress. But at least one key advocate says he feels "let down" by the measure because it fails to include "incentives for working, investing, and entrepreneurship."

"The stimulus deal will do little for the economy. The measures aimed at business are temporary, and too targeted," said Raymond Keating, chief economist for the Small Business & Entrepreneurship (SBE) Council, a nonprofit and nonpartisan advocacy and lobbying organization. The SBE favors a bill sponsored by Capitol Hill conservatives.

Small businesses may have other reasons to feel let down as well. A provision in the Senate version, which would have aided small firms, is in jeopardy. And a long-sought measure to level the playing field on health insurance for the self-employed failed to make it into either package.

The House version, which President Bush is strongly backing, would pump $149.9 billion into the economy. About a third of that is targeted at businesses. Nearest and dearest to small firms is an increase in Section 179 expensing to $250,000 from $125,000, which has strong bipartisan support in both houses.

Another key provision would allow small businesses to take an additional one-year depreciation deduction of up to 50 percent of the value of new property. The bonus depreciation is an incentive for businesses to invest in their business now because it provides an immediate deduction for half the cost of the investment, according to Dan Danner, executive vice president of the National Federation of Independent Business (NFIB).

Small businesses would also get a significant boost by a "carry-back" provision, which is also part of the Senate stimulus bill. It would extend the so-called "carry-back period" for net losses to five years from two years. The change would allow businesses to apply losses in 2006 and 2007 to tax returns dating to 2001 and 2002. Such a move could generate additional refunds and cash flow during the projected downturn.

Senate small business committee Chairman John Kerry, D-Mass., and the ranking committee member, Olympia Snowe, R-Maine, had co-sponsored the carry-back provision in a separate bill and were able to have it included in the overall package.

But Senate Republicans, with strong lobbying from the White House, effectively blocked the $157 billion measure. After falling short of the 60 votes required to force a floor vote, Senate Democratic leaders said they would support the cheaper House bill. That all but signaled an end to the carry-back provision. But a chance, however slim, still exists that it could be added to the House bill when the Senate takes it up on Monday, according to small business advocates.

"[The] NFIB plans to continue working with lawmakers as the stimulus package is considered by the U.S. Senate and will fight hard to have the net operating loss carry-back provision included in the final economic stimulus package," said Danner.

Kerry said the targeted tax incentives would improve cash flow for small firms, "which is critical for creating jobs and stimulating our economy, and help small businesses invest."

The National Association for the Self-Employed (NASE), a group that represents the smallest of small businesses, has long advocated a change in tax law to allow the self-employed to fully deduct the cost of health care insurance like large corporations. Sole proprietors, however, must pay self-employment tax on the expenditure. I wrote about their predicament in my column, Self-Employed Left Twisting in the Wind on Health Insurance, last October.

The NASE also said microfirms would benefit indirectly from provisions in the stimulus bill aimed at consumers. Workers who earned at least $3,000 in 2007, but paid little or no income tax, would qualify for checks of $300 for individuals and $600 for married couples. Most other taxpayers would get checks of up to $600 for individuals and $1,200 for married couples. Payments would phase out for individuals with more than $75,000 in adjusted gross income and couples making more than $150,000.

Meanwhile, conservative lawmakers are hanging their hopes for what they consider a more effective stimulus plan on a bill known as the Economic Growth Act of 2008 (H.R. 5109). The Heritage Foundation, a conservative Washington think tank, and the American Conservative Union, have endorsed the measure, which was drafted by the Republican Study Group.

In addition to increasing Section 179 expensing, it would cut the top corporate tax rate to 25 percent from 35 percent. It would also index to inflation the cost basis used to calculate the capital gains tax and reduce the top rate to 15 percent from 35 percent.

The House and Senate have set a self-imposed deadline of Feb. 15 to deliver a stimulus package to the president to sign into law. That still leaves a short but intense period for politicking, which means nothing is yet off the table. "These provisions will help small businesses retain their current employees, hire new workers, and purchase needed equipment for their businesses. NFIB urges Congress to act quickly to pass this economic stimulus package," said Danner.

If senators push for changes, the carry-back provision is likely to take a back seat to other stalled Senate provisions that extend unemployment benefits and increase assistance for the disabled and veterans. They will have to convince House leaders to go along and persuade Senate Republicans to drop their opposition.