Some policy issues seem fixed on Congress's legislative agenda. A case in point is the taxation of small firms and its effect on their rate of formation, economic performance, and prospects for growth. Nonetheless, some lawmakers say existing tax relief for small firms is inadequate; thus, they favor the adoption of further targeted reductions in the tax burden on small business owners. Most take the form of deductions, exclusions and exemptions, credits, deferrals, and preferential tax rates. Existing small business tax benefits also differ in scope and economic importance. Significant Legislative Proposals in the 110th Congress

A growing number of proposals to enhance existing small business tax preferences or create new ones have been introduced in the current Congress. Several such proposals merit discussion because they played a central role in congressional approval of legislation to increase the federal minimum wage. The Senate responded by passing an amended version of H.R. S. 349 paired the same increase in the federal minimum wage with a package of tax benefits intended to mitigate the impact of the increase on the financial conditions of small firms. 2 , the House passed H.R. 976 would have provided five business tax benefits: (1) a one-year extension of the WOTC (through 2008), an expansion of the credit to include disabled veterans, and an increase from 25 to 40 in the age limit for eligible employees living in empowerment zones and enterprise and renewal communities; (2) a one-year extension of the expensing allowance (through 2010), an increase in the maximum allowance to $125,000 and the phaseout threshold to $500,000 starting in 2007, and an indexation of both amounts for inflation; (3) a freeze in the minimum wage at the current level of $5.15 for the purpose of determining the tax credit that employers in the restaurant business may claim for federal payroll taxes paid on employee tips above the federal minimum wage; (4) a permanent waiver of the limitations under the individual and corporate alternative minimum tax on claims for the WOTC and the business tax credit for federal payroll taxes paid on employee tips; and (5) a revision of current tax filing requirements to allow a married couple who owns an unincorporated business to file as a sole proprietorship, instead of a partnership, without incurring a penalty, and to allow both spouses to receive credit for payroll taxes paid. The House passed the measure on March 23. It included the minimum wage provisions from H.R. 1591 contained the same business tax benefits as H.R. The estimated revenue cost of the business tax benefits in the Senate-passed version of H.R. House and Senate leaders agreed to a conference to resolve the differences between the two versions of H.R. On April 24, House and Senate negotiators filed a conference report ( H.Rept. 110-107 ) that included a package of business tax benefits with a projected revenue cost of $4.8 billion from FY2007 through FY2017 and a package of revenue raisers designed to offset that cost. The House approved the report on April 25, and the Senate did likewise on the following day. But President Bush vetoed the measure on May 1, mainly because it contained a timetable for withdrawing U.S. combat troops from Iraq that he deemed unacceptable. A second bill to provide supplemental appropriations for FY2007 ( H.R. It omitted any timetable for withdrawing troops from Iraq but included the same packages of business tax benefits and offsetting revenue raisers from the version of H.R. President Bush signed the measure on May 25.
Some policy issues seem fixed on Congress's legislative agenda. One such issue is the taxation of small firms and its effects on their formation, performance, and growth. In the view of some lawmakers, the current federal tax burden on small firms, though smaller than it could be because of existing small business tax benefits, should be reduced further because it hinders their formation and retards their growth. Others find it difficult to justify on economic grounds additional tax relief for small business owners.
The federal tax code offers numerous benefits of varying importance to small firms, regardless of their lines of business. Most of these benefits take the form of deductions, exclusions and exemptions, credits, deferrals, and preferential tax rates.
A growing number of proposals to expand certain existing small business tax preferences, or create new ones, have been introduced in the 110th Congress. Several related bills are worth noting because they played a central role in congressional approval of legislation to increase the federal minimum wage.
Early in the current Congress, the House and Senate passed differing versions of legislation (H.R. 2) to raise the federal minimum wage from $5.15 to $7.25 over two years. The House version included no tax benefits intended to soften the impact of the increase on the financial condition of small firms, whereas the Senate version contained a set of such benefits and a package of revenue raisers intended to offset their revenue cost over 10 years.
With negotiations over moving to a conference on minimum wage legislation stalled, the House passed on March 23 a FY2007 supplemental appropriations bill (H.R. 1591) that included the minimum wage provisions from H.R. 2 and the business tax benefits from a bill it approved in February (H.R. 976). The Senate responded by passing an amended version of H.R. 1591 on March 29 that included the same minimum wage increase and an expanded version of the business tax benefits from H.R. 2. Differences between the two versions of H.R. 1591 led to the formation of a conference. A conference report (H.Rept. 110-107) was filed on April 24 that combined a set of business tax benefits with a package of revenue raisers intended to offset their estimated 10-year revenue cost of $4.8 billion. The House approved the report on April 25, and the Senate did likewise the next day. But President Bush vetoed the bill on May 1, mainly because it included a timetable for removing U.S. combat troops from Iraq that he opposed.
The House and Senate then passed a second FY2007 supplemental appropriation bill (H.R. 2206) that omitted any such timetable but contained the same business tax benefits and revenue raisers. President Bush signed the measure on May 25.
This report describes significant proposals in the 110th Congress to create new tax benefits for small firms across all industries, or to enhance existing such benefits. It will be updated to reflect recent legislative activity.