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Rangel Says His Tax Bill Will Boost Small Business

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

31 October 2007


House Ways and Means Committee Chairman Charles Rangel (D - NY) says that his wide ranging (and widely criticised) tax reform bill announced last week will provide "overwhelming" tax relief to America's small businesses.

As criticism of his tax proposals mounts, Rangel countered in a statement released on Monday that his Tax Reduction and Reform Act of 2007 would help entrepreneurs and business owners grow their enterprises by eliminating the alternative minimum tax (AMT), permanently extending the current enhanced small business expensing rules, and providing significant rate reductions for small businesses organized as taxable corporations. These provisions would help to reduce the tax burden on small businesses and encourage them to purchase new equipment for further growth, he stated.

"Like the rest of Americans, the overwhelming majority of small business owners will receive a tax cut under this bill," Rangel suggested. "This bill provides meaningful tax relief to millions of small business owners who are caught in the trap of the AMT and provides a permanent extension of expensing benefits to encourage small businesses to buy new equipment and promote further growth. This legislation is a combination of tax relief for individuals and corporations that will create growth at every level of the economy."

Rangel argues that his proposal to repeal AMT is particularly beneficial to small business owners, since the tax has the effect of denying other helpful benefits such as deductions for state and local income taxes and the research and development credit. Offsets to help pay for the measures would affect just 4% of small business owners, he claims, citing Treasury Department figures.

The number of small business owners subject to AMT is believed to have tripled in recent years.

The legislation also encourages small business owners to invest in the US by permanently extending the largest tax benefit they enjoy, the ability to immediately write-off the first $125,000 annually of their business investment. It also cuts the top rate of corporate tax to 30.5% from 35% for all businesses with taxable income of more than $75,000.

Despite his assertion that the legislation would provide tax relief for 90 million American families, taxpayer groups such as the NTU have warned that it would actually increase the overall tax burden and small businesses.

Republicans have also lined up to pick the bill apart, with Sen. Chuck Grassley, ranking member of the Senate Finance Committee, warning that the bill could bring "the mother lode of economic trouble".

Grassley claims that, because Rangel's proposals replace AMT with a surtax on high income families and remove itemized deductions like mortgage interest, as well as capital gains and dividend income, the bill would actually result in a tax increase of about $1 trillion, and then another $1 trillion tax increase in 2011. He also points out that the vast majority of America's small firms are sole proprietorships, Subchapter S corporations, or partnerships - not corporations - and thus their corporate tax rate will not go down.

"Small businesses and domestic manufacturers shouldn’t lose in reform. If that’s the case, the ‘mother of all tax bills’ could become a political orphan. It could cause a mother lode of trouble, especially economic trouble,” Grassley commented.


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