Tax relief talk is up in the air, as the looming debate in Congress over whether to continue income tax cuts for the wealthy continues. President Barack Obama proposes that the tax cuts enacted in 2001 and 2003 under President George W. Bush should continue for all but the wealthiest Americans, namely couples making more than $250,000 or individuals who earn more than $200,000.
This is to be debated in mid-September, just weeks before voters head to the polls for the November election that will determine the balance of power in Congress.
The tax cuts for taxpayers across all income levels will expire at the end of the year unless Congress votes to extend some or all of them.
Republicans repeatedly accuse Democrats of planning to raise taxes on the small businesses that typically play a disproportionate role in creating millions of jobs each year. They cite as evidence a paper released in July by the Joint Tax Committee, which estimated that 50 percent of about $1 trillion in business income next year will be taxed at the two highest rates if the Bush tax cuts are allowed to expire Dec. 30.
While economists agree that Congress should do more to help small businesses obtain loans, Republicans filibustered the bill just before the Senate adjourned for its five-week break on the grounds that Democrats had added nonessential spending and were refusing to allow Republicans to offer many amendments.
In particular, Republicans wanted to have a debate on a measure providing regulatory relief to small businesses by repealing a provision in the health care bill forcing them to compile extra paperwork to prove compliance with the tax laws.John Kartch, an analyst at Americans for Tax Reform, said the way businesses are organized seems to make a difference. The smallest businesses usually are organized as "sole proprietors," have lower incomes and would not be affected as much by the rate increases.But a vital sector of somewhat larger businesses organized as partnerships and "S chapter" corporations under the tax law would be hit hard, he said. These businesses, which include law firms and venture capital firms, also report their income as personal income on their tax returns and are subject to the highest rates.Economists in general favor at least a temporary extension of all the cuts so as not to disrupt the economy. Prompting concern was a recent Labor Department survey that found that businesses with fewer than 50 employees -- which normally create as much as 75 percent of all jobs -- accounted for 62 percent of all job cuts and only 54 percent of new jobs at the end of last year.In light of the deteriorating job situation, a survey by the National Association of Business Economists found that 54 percent of economists support extending all the tax cuts.
Another 33 percent say Congress should follow the president's plan and extend only those for the middle class. These economists also largely support extending the dividend and capital gains tax cuts that expire at the end of the year."The tax cut is important for small businesses," said Sung Won Sohn, an economics professor at California State University at Channel Islands. "Many of them earn more than $250,000 and would be paying higher taxes if the cuts are allowed to expire. Often, they have significant dividend income."According to Bloomberg, lawmakers expect President Obama to urge Congress to make the research and development tax credit permanent in order to boost the economy.
