President’s 2013 Budget Proposal -- What’s in it for Small Business?

Not much!  At least that’s the consensus among a number of small business experts. Here’s a brief overview of what the President has proposed:

Overall budget

The proposed federal budget would be $3.8 trillion for fiscal year 2013 (starting October 1, 2012, and ending on September 30, 2013). After spending cuts and increased revenue, the budget is projected to result in a $901 billion deficit.

Increased revenue would result from:

  • $1.4 trillion in new revenue, primarily raised from new or higher taxes on so-called “wealthy” individuals
  • $364 billion in savings from lower healthcare spending over the next 10 years

Tax changes

The changes would largely result from letting the Bush-era tax cuts expire for “wealthy individuals” ($200,000 for singles and $250,000 for joint filers) and by codification of the so-called “Buffett rule,” which requires those earning over $1 million to pay at least 30% in federal taxes.

It would also cap personal/dependency exemptions and itemized deductions for high earners. Most significantly it would change the capital gain tax rate and treatment of qualified dividends for these same high-income taxpayers so that the capital gain rate would be 20% (instead of 10%) and qualified dividends would be taxed as ordinary income rather than at capital gain rates.

According to the Treasury’s Green Book, which is an explanation of the tax proposals in the budget, there are several tax incentives for small business included in the budget proposals:

  • Extend 100% bonus depreciation through 2012
  • Create a new tax credit for small businesses that add to payroll
  • Transform the deduction for energy-efficient commercial buildings into a tax credit
  • Double the domestic production activities deduction from 9% to 18% for certain manufacturers
  • Make permanent the 100% exclusion for gain on the sale of qualified small business stock
  • Double the write-off for startup costs
  • Expand and simplify the credit for small employers providing health coverage

What the budget means to you
It’s way too early to assess the provisions in the budget. The Senate has yet to pass any budget for the three years, and there’s little reason to think it would do so now, during this election year.

However, if the suggestions in the budget were to be approved, I don’t think small business comes out ahead. Just the opposite, it seems that small business will be the ATM machine for continued federal programs, including extensions for unemployment benefits and entitlement programs.

From a tax perspective, since most small business owners report their share of business income on their personal returns, it’s likely that any tax breaks from these proposals would be canceled out by the new tax burden on so-called “high-income” taxpayers.

Let’s keep a close watch on what Congress does with these budget proposals. It would mean that we’ll have to ante up more!


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