Legislation known as The Small Business Tax Cut Act was recently introduced by the Republicans and has just been approved by the House of Representatives. The bill, which, for one year only, would offer deductions up to 20% of business income to companies with 500 employees or less, is expected to face serious difficulties making its way through the Senate, and the President has declared that he will veto the bill if it is passed. Meanwhile, Senate Democrats have introduced a counter-proposal also focused on new tax cuts for businesses, which would offer a 10% tax credit to any company that increases payroll in 2012, whether that be by hiring new employees or boosting wages of current employees. It would also allow a 100% write-off of major purchases made in 2012, such as investment in equipment and buildings. Neither plan includes qualification restrictions based on type of company, industry or revenue, though the 20% tax break maxes out at 50% of W-2 wages paid by the company, and the 10% tax credit is capped at a $5 million increase ($500K credit). Other ideas that the President has discussed include permanently eliminating the capital gains tax on investments in small businesses and increasing the amount of start-up expenses business owners can deduct from $5,000 to $10,000.
On a separate note, a bill was passed by both the House of Representatives and the Senate in early April that relaxes some of the SEC requirements currently in place for companies looking to go public. Instead of requiring an independent audit and various investor disclosures prior to an initial public offering (IPO), small and medium sized companies with less than $1 billion in gross revenue will have up to 5 years, or until revenue hits the $1 billion mark, to produce the audit and disclosures. The bill was passed in hopes of making it easier for more companies to become publicly traded. Many believe that if these small to medium sized companies are able to raise more capital, it will jumpstart economic growth, job creation and innovation. With that being said, critics of the bill fear that with 80% of firms going public falling beneath the $1 billion threshold, investors may not feel comfortable investing in those companies. Furthermore, the bill would allow companies to solicit investors directly and bypass regulations to raise capital from large groups of small (and perhaps less informed) investors. This could pose a serious threat with such great potential for fraud.