Tax News

CCH (cch.taxgroup.com) reports:

The Senate Finance Committee (SFC) on January 17 approved the Small Business and Work Opportunity Bill of 2007, an $8.3 billion package of tax incentives for small business that will most likely be offered as an amendment when the full Senate takes up minimum wage legislation (the Fair Minimum Wage Bill (HR 2)) in the next week or two. However, the measure faces a potential uphill battle in the House, where Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., has stated his opposition to adding tax incentives to the wage bill.
SFC Chairman Max Baucus, D-Mont., said that he has discussed the matter with Rangel on January 16, and the final decision remains in the hands of the Democratic leaders in the two chambers. Baucus reiterated that a minimum wage bill could not pass in the Senate without the small business provisions.
The noncontroversial tax provisions, most of which only extend existing provisions for several months, have been overshadowed, however, by an $806 million revenue raiser that would cap at $1 million the amount of executive compensation that can be deferred annually. A related provision modifies the definition of employees covered by the denial of deduction for excessive employee compensation. The first provision has been harshly criticized by leaders of the business community, but Baucus defended its inclusion, telling reporters that "it addresses the very basic issue of disparity of income in America ... it's good policy."
By far the largest revenue raiser is a $4.1 billion provision modifying the effective date of the sale-in, lease-out (SILO) transactions, effectively making present law retroactive to such arrangements made prior to March 2004. Another $1.15 billion would come from changes in the tax treatment of corporate inversion transactions under the American Jobs Creation Act of 2004 (P.L. 108-357).
The Chairman's Mark passed unanimously by voice vote and, although there were no amendments offered, Baucus agreed to work with Sen. Jon Kyl, R-Ariz., on his proposal to extend the tax benefits through 2010, when the bill reaches the Senate floor. Only one provision, expanding and extending the work opportunity tax credit, remains in effect for a five-year period.
Highlights of the package include an extension of Code Sec. 179 expensing, accelerated depreciation for new restaurant construction, increased flexibility in use of the cash balance method of accounting, extension and expansion of the work opportunity tax credit (WOTC) and increased flexibility for small businesses to qualify for tax preferences as S corporations. SFC ranking member Charles E. Grassley, R-Iowa, said that he and most Republicans would have preferred to see less focus on the WOTC benefits but acknowledged that many Democrats supported its inclusion.
House Reaction
Separately, Democratic House lawmakers reacted negatively to the Finance Committee's action. "I don't think they can send a tax bill over here. They can talk to people over here," quipped Rangel, who said that he has no plans to consider merging small business tax relief with an increase in the minimum wage.
House Majority Leader Steny Hoyer, D-Md., said that he was very disappointed by the SFC's passage of the tax package. "The choice to tie a bill raising the minimum wage to tax breaks for businesses will cost taxpayers $8 billion and complicate and delay the passage of an increase," Hoyer said.
White House Position
The White House supports legislation that pairs a federal minimum wage increase with small business tax breaks and regulatory relief. The administration opposes, in its current form, the clean minimum wage bill, HR 2, which is scheduled for a House floor vote on January 18.
President Bush has maintained that failure to provide relief to small business paying a higher federal minimum wage could result in the loss of jobs for low-wage earners. The administration, in a written policy statement, applauded provisions in the Working Families Wage and Access to Health Care Bill (HR 324), which would establish association health plans and increased expensing for small business.
By Jeff Carlson, Stephen K. Cooper and Paula Cruickshank, CCH News Staff
SFC Release: Package of Small Business Tax Incentives Wins Unanimous Approval of Senate Finance Committee
SFC Release: Baucus Opening Statement
SFC Release: Grassley Statement
SFC Release: Grassley Highlights Committee Passage of Tax Loophole Closers
JCT Description of the Chairman's Modification of the Provisions of the Small Business and Work Opportunity Act of 2007, JCX-5-07
JCT Estimated Revenue Effects of the Chairman's Modification to the Small Business and Work Opportunity Act of 2007, JCX-6-07
Working Families Wage and Access to Health Care Act, HR 324