Now that the election is over, Congress will begin to focus on the three E’s of unfinished tax business:
- Extenders (provisions that expired at the end of 2009 but could be retroactively added for 2010), which includes the research credit and the increased exemption amount for the alternative minimum tax.
- Expiration of the Bush tax cuts, including current low tax rates on ordinary income, capital gains and dividends.
- Estate tax, which is scheduled to reappear in 2011 at pre-2002 levels.
For the past several years, small business has been trying to make it in a climate of tax uncertainty. Provisions have been created to stimulate job growth and business investment, but run for only a short period. For example, the payroll tax holiday created by the HIRE Act for hiring unemployed workers applies only for wages paid after March 19, 2010, and before January 1, 2011. The 100% exclusion for gain on the sale of small business stock created by the Small Business Jobs Act applies only to stock issued after September 27, 2010, and before January 1, 2011. The research credit, which was created in the Economic Recovery Tax Act (ERTA) of 1981, has expired and then been extended (often retroactively) more than a dozen times and it has remained a temporary provision for nearly three decades!
I submit that these temporary tax provisions, no matter how noble in intent or seemingly beneficial to business, are not enough to help the economy. Short-lived tax breaks may not even become known to business owners before they expire. It’s also difficult to make business plans without the knowledge that time-sensitive provisions will be extended.
The rhetoric in this election period was “create jobs” and “get the economy moving.” My plea to the lame duck Congress set to convene on November 15th and to the 112th Congress that will take over after the New Year is to recognize the importance of tax certainty and enact legislation that will run long enough to allow businesses to plan and benefit from tax incentives. Maybe then small business can do its thing—innovate, create jobs, and contribute mightily to the economy.