House Tax Writers Introduce US Small Business Relief Bill

by Mike Godfrey, Tax-News.com, Washington

13 February 2007

House Ways and Means Committee Chairman Charles Rangel (D - NY) and Ranking Member Jim McCrery (R - La) have introduced a new bill which would provide tax relief for small businesses to compensate for an increase in the federal minimum wage.

According to Rangel, the bipartisan legislation, known as the Small Business Tax Relief Act of 2007, extends critical tax provisions for small business owners, and paves the way for the House and Senate to come to an agreement on legislation to raise the minimum wage from $5.15 per hour to $7.25 per hour.

“This bill strengthens opportunities for small businesses and serves as a symbol of what can happen when Democrats and Republicans work together,” explained Chairman Rangel, adding that: “This tax relief will help small businesses continue to grow and hire new workers to keep our economy strong. This is a bipartisan bill providing critical momentum for the bipartisan effort to raise the minimum wage.”

In summary, the new bill would:

• Extend the Work Opportunity Tax Credit (WOTC) for an additional year so that it will be available for qualifying workers after December 31, 2007;
• Extend a small business expensing provision for an extra year with an increase from $112,000 to $125,000 in the total amount of expensing allowed;
• Permit restaurants to claim full tip credit despite any increase in the minimum wage;
• Provide a permanent waiver of the individual and corporate alternative minimum tax limitations that prevent small firms from claiming the WOTC;
• Allow unincorporated businesses owned jointly by a married couple in common law states to file as a sole proprietorship without penalty, and ensure both would receive credit for paying social security and Medicare taxes;
• Deny the lowest capital gains and dividend tax rates (currently 5%, next year 0%) to certain dependent children to prevent wealthy taxpayers from shifting income to their children to avoid tax;
• Extend the time for the Internal Revenue Service to provide Notice of Deficiency.

“I believe it is important to couple a minimum wage increase with tax cuts to help businesses that will be hurt by higher costs,” stated McCrery.

“This bill will provide nearly $2 billion in tax relief, and unlike in the Senate bill, much of that relief will be immediate - helping business when costs are rising, not just down the line. I look forward to working with Chairman Rangel and our colleagues in the Senate as we try to get a minimum wage bill with sensible tax relief signed into law," he added.

However, tax relief in the House bill falls way short of the $8.3 billion in business tax cuts currently contained in the Senate version, and while Senate Finance Committee Chairman Max Baucus (D - Mon) has applauded House tax writers for signalling their willingness to compromise, he expressed dismay with the lack of certain provisions in the new House bill.

"I’m disappointed to see several Senate provisions absent from the House bill, but now at least we’ve got a ball game," he commented.

Initially, House Democrats had hoped to pass a 'clean' minimum wage bill without any offsetting tax breaks.

"As we work to hammer out the differences between these two bills, my task will remain the same: to get an agreement that can pass the Senate again, and get a pay increase to America’s minimum-wage workers. We need to buckle down now, and not waste any time getting the job finished," Baucus concluded.

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