New Proposal Offers Tax Relief For Small US Firms While Punishing Offshore Activities

by Leroy Baker, Tax-News.com, New York

08 March 2005

Senator Rick Santorum (R – Pa), has introduced proposals into the Senate that will cut taxation by more than $4 billion for a variety of small US businesses, the cost of which will be offset by extra taxes on companies and individuals with certain offshore interests, according to Dow Jones Newswires.

Under Santorum’s plan, designed to offset the cost of a $2.10 rise in the minimum wage proposed by Sen. Edward Kennedy (D – Mass.), $3.4 billion in tax relief would be given to the restaurant industry through accelerated depreciation write-offs for buildings.

In addition, the tax package would extend the $100,000 limit for ‘section 179 expensing’ which allows small firms a greater deduction for business costs.

Small firms would also receive $522 million in tax relief as a result of a clarification allowing companies to use the cash accounting method for purchases and sales of merchandise.

However, the total cost of the tax cuts, estimated to be $4.2 billion over the next ten years, would be offset by punishing firms who move their headquarters to an offshore location with $2.7 billion in extra taxes.

Furthermore, Santorum’s measures will seek to raise an additional $506 million from individual expatriates and another $119 million from a clarification of the tax treatment of foreign corporations owned by US taxpayers. According to a summary of the measures, this latter proposal is aimed at closing “an inappropriate deferral of overseas income”.

Penalties for certain foreign tax credit transactions, offshore financial arrangements and frivolous tax filings will also be increased under the proposals.

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