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Small Business Jobs and Credit & Tax Relief Acts

Democrats in Congress continue working to create American jobs and restore fiscal accountability and discipline--standing up for small businesses, U.S. taxpayers and building a strong new foundation for the American economy. To create hundreds of thousands of jobs on Main Street, the House passed two bills this week to expand much needed lending to small businesses and offer tax incentives to help small businesses grow, hire, and fuel our economy--which are fully paid for and comply with pay as you go budget law.

Small businesses are the engine of our economy, creating two-thirds of the new jobs over the last 15 years.  They continue to face a lack of credit and tight lending standards, with 45% of small businesses seeking loans unable to get their credit needs met in 2009 and lenders reporting three years of tightening loan standards for small firms through this winter.

The House passed the Small Business Jobs and Credit Act (HR 5297) on June 17th by a vote of 241-182 and Small Business Jobs Tax Relief Act (HR 5486) on June 15th by a vote of 247-170 to:

  • Leverage up to $300 billion in loans for small businesses through a $30 billion lending fund for small and medium-sized community banks, which focus on lending to small firms, and $2 billion for innovative state lending programs supporting small business. A few public dollars can generate substantial private bank financing; net cost of this lending is $1 billion over 10 years. The lending fund is separate from and unlike TARP it is fully paid for and will save taxpayers $1 billion as banks are expected to repay funds over 10 years; it is limited to smaller banks; and tough performance-based incentives would ensure that banks lend to small businesses.
  • Restart private investment to meet small businesses' evolving financing needs through a new SBA public-private partnership.
  • Provide $3.5 billion in tax incentives to spur investment in small businesses and the formation of new small businesses, and grant small business tax penalty relief.

Read the Small Business Jobs and Credit Act»

Read the Small Business Jobs Tax Relief Act»

More on the provisions:

    Small Business Jobs and Credit Act (H.R. 5297 - net cost $2 billion)

    • Small Business Lending Fund: Delivers loans to small business on Main Street to push the recovery forward and create jobs through a new $30 billion lending fund for small and medium sized community banks ($10 billion or under) that could leverage up to $300 billion in lending.
    • Community banks provide the credit that small businesses need to grow and create jobs in communities across the country and now the financial crisis on Wall Street and the Bush recession have diminished these banks' ability to lend.
    • CBO estimates that this provision would actually save taxpayers $1 billion over 10 years, as banks are expected to pay back these funds over 10 years with interest.
    • The bill includes tough performance-based incentives to make sure that these banks lend to small business. 
    • Banks with assets of less than $1 billion would be able to borrow an amount equal 5% of their assets, and banks worth up to $10 billion would be eligible for an investment of up to 3% of their assets.
    • The banks would repay the government's loan at a dividend rate starting at 5% with lower interest payments if they expand their small business lending. That rate would drop by 1% for every 2.5% increase in small business lending that the bank shows compared to 2009.  A lender could cut its dividend rate to just 1% by increasing small business loan portfolio by 10%.
    • But if the bank reduced its small business lending, its repayment dividend would shoot up as high as 7%.
    • The program would only be available to banks with assets of less than $10 billion -- ruling out the megabanks that have drawn fire for putting their own interests before their customers.
    • State Small Business Credit Initiative: Provides $2 billion in funding for new or existing state lending programs. These programs already exist in around thirty states, and use small amounts of public dollars to generate substantial private bank financing. By supporting existing expertise in states around the country and using an easy to replicate model, this program will be able to quickly increase small business lending and create jobs. This would have a significant bang for the buck supporting over $20 billion in small business lending.
    • Small Business Early Stage Investment:  Helps promising small business start ups through a public/private partnership designed to channel investment capital to them.  How small businesses are financed is evolving.  While entrepreneurs have traditionally used assets like real estate to secure loans, we are now seeing more business owners seek financing based on non-tangible strengths -- like their intellectual capital and employees.  This proposal recognizes this shift and helps firms access capital to grow and create jobs.   This provision has twice passed the House, in the Small Business Financing and Investment Act - H.R. 3854 - and, again, in the Small Business Early Stage Investment Act of 2009 - H.R. 3738, with strong bipartisan support. Estimated cost: $1 billion over 10 years.

    Small Business Jobs Tax Relief Act (H.R. 5486)

    • Spur Investment in Small Businesses:  Increases the capital gains tax cut for those who invest in small businesses this year, like President Obama's budget.  The bill would exclude 100% of capital gain income for stock in small businesses purchased from March 15, 2010 to January 1, 2011.  Estimated cost: $2.0 billion over 10 years.
    • Small Business Penalty Relief:  Fixes a tax shelter disclosure penalty (Section 6707A) disproportionately impacting small businesses. Endorsed by the Small Business Council of America, the bill makes penalties for failing to disclose reportable transactions on their taxes proportionate to the underlying tax savings for small businesses.Some businesses were assessed penalties as high as $300,000 for receiving a tax benefit of as little as $15,000.  Estimated cost: $176 million over 10 years.
    • Increase in deduction for business start-up expenditures:  Increases to $20,000 (from $5,000 in current law) the deduction forstart-up expenditures in connection with investigating the creation of a business (but not capital or equipment), and allows more businesses to qualify for the maximum deduction. By allowing entrepreneurs to recover more start-up expenses, small business owners can focus more on hiring new workers and growing their businesses. Estimated cost: $508 million over 10 years.

    Fully Paid for/Closing Tax Loopholes ($7.1 billion)

    • Crude Tall Oil:  Closes a loophole that allows paper mills to claim biofuel tax credit for a byproduct known as 'crude tall oil'-- a waste by-product of paper manufacturing. The bill would limit the tax credit to fuels that are not highly corrosive (i.e., fuels that could be used in a car engine or in a home heating application). Estimated to raise $1.849 billion over 10 years.
    • Curtailing a Gift Rule Loophole: Includes the President's 2011 Budget proposal to significantly limit a type of tax planning that allows rich families to pass on wealth while cutting their estate and gift taxes. It requires taxpayers setting up a trust (grantor retained annuity trusts (“GRATs”)) totransfer of assets to another individual to avoid gift taxes must include a minimum 10-year term for the annuity. GRATs are a trust with a specific life or term that allows a wealthy person to transfer more money to heirs than they otherwise could under the “$1 million in a lifetime” rule. With the strategy, an asset is placed into a trust by a grantor, who then takes back an annuity, which is made up of the asset value plus a variable interest rate.  GRATs work best when the asset appreciates more than the interest rate. Death during the term of the annuity generally eliminates the tax benefit of using a GRAT, as it is taxed to the estate. By calling for a 10 year term, the bill requires that taxpayers take a greater risk that they might die during the GRAT term in order to take advantage of the gift tax benefits of this device. Estimated to raise $5.297 billion over 10 years.