I’ve been following this week’s press on the proposed tax plans for small businesses.  Two prongs of the plan to provide $35B in tax cuts for small businesses and workers were under fire in this morning’s edition of The Wall Street Journal: 1) increasing, for 2010 and 2011, the write-off for qualifying equipment to 100%–a two-year cut, and 2) making the tax credit for business-research expenses permanent.

Today’s articles highlighted some of the issues small businesses struggle with as they contemplate how these proposed cuts could help them lower the 9.6% unemployment rate the country is facing.  Assessing the net impact of any tax cut or increase is difficult at best, and consumer and business confidence is much of what helps to boost the economy.  Knowing that you won’t have to spend additional money on taxes, or that you might even spend less, can give you the confidence to project your revenues and expenses, and thus to assess growth opportunities and the hiring of additional employees.

As far as the proposed cuts go, businesses spending less than $800K on certain equipment can already write-off up to $250K, which means many small businesses are already taking advantage of this write-off.  It appears to be a two-year tax cut targeted at a very small number of businesses: those making over $800K in either manufacturing or an industry that must constantly re-invest in new equipment. While manufacturing as a whole comprises almost 12% of employment, it represents only 5% of all establishments, most of whom are large companies. 

If this write-off is an attempt to encourage spending through the purchase of new equipment (which could have a net positive, short-term impact), what is the reality of a small business having the funds to make such a purchase?  Investing in capital equipment requires a cash investment no matter how quickly it can be written off.  Most small businesses simply don’t have access to the cash required for these purchases, and, even if they do, most are already with the qualifying $250K limit.  Is a tax credit with a two-year limit really just a quick shot of adrenaline versus a boost that will provide a long-lasting impact to the majority of small businesses, the fabric of our economy?

Making the credit for research expenses permanent is a longer-term fix, but it requires the ability to see ahead and invest in the future in a time when many small businesses are struggling to make it from one day to the next. 

What would you propose?  What tax relief would help you expand your business and help reduce the unemployment rate?

WSJ: Obama Tax Plan Holds Less for Small Business http://online.wsj.com/article/SB10001424052748704358904575478053722103156.html

Parties Spar Over Small-Business Proposal http://online.wsj.com/article/SB10001424052748703417104575473653330146646.html

Kelli Spencer is a product marketing professional.  Ftrans combines professional receivables services with fast and affordable access to funding – providing small and medium businesses the cash they need to grow and take advantage of market opportunities.  Liberating you from funding challenges and receivables hassles.

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