President Obama Proposes Tax Credits, Other Assistance for Small Businesses

President Obama Proposes Tax CreditsIn his State of the Union address last week, President Obama had a lot to offer to the nation’s small businesses. Here are some of the ideas he proposed:

• Using $30 billion in TARP funds that the big banks have repaid to help community banks make additional loans to small businesses.

• Eliminating all capital gains taxes on investments in small businesses.

• Offering tax incentives for businesses that invest in new plants and equipment.

• Eliminating tax cuts for companies that move jobs overseas.

• Passing comprehensive energy and climate legislation to promote energy independence. Ultimately, President Obama said, the transition to a clean energy economy would create millions of new American jobs.

• A National Export Initiative to help small businesses increase exports. The president vowed, “We will double our exports over the next five years, an increase that will support 2 million new jobs in America.”

Jobs were the number one concern for the president going into his address, and the proposal that has drawn the most attention so far was his announcement of tax credits for businesses that hire employees or give existing workers raises. President Obama spelled out more specifics of that plan January 28th in Baltimore. According to the White House web site, here are the details:

Through the Small Business Jobs and Wages Tax Cut:

• Businesses will receive a $5,000 tax credit for every net new employee that they employ in 2010. The total amount of the credit for any one firm will be capped at $500,000, to ensure that the majority of the benefit is targeted at small businesses. Start-ups will be eligible for half of the tax credit.

Small businesses that increase wages or hours for their existing employees will be reimbursed for the Social Security payroll taxes they pay on real increases in their payrolls. This bonus would be based on Social Security payrolls, so it would not apply to wage increases above the current taxable maximum of $106,800.

• Firms will be able to claim the credit on a quarterly basis. This will get money out to businesses quickly and provide an incentive to hire and increase payrolls.

More details about the president’s other proposals will be announced in the coming weeks. In my opinion, many of these proposals are a step in the right direction-but, even if they get beyond the proposal stage, I’m not sure how quickly they can affect small businesses.

For instance, increasing exporting is an admirable goal, but one that’s easier for bigger businesses than small businesses to achieve. Succeeding in exporting is not a quick or easy process. And small businesses seeking to increase exporting or get involved in it for the first time will most likely need capital to do so.

Similarly, expanding tax credits to encourage hiring is a positive idea, but is a $5,000 credit enough to offset it the expense of hiring a full-time employee? Many small-business owners I know have gone without salaries themselves to get through the Great Recession. Do they have the money or confidence to add staff?

I’d love to hear your thoughts on the President’s proposals.

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Rieva Lesonsky Rieva Lesonsky is a Columnist for Small Business Trends covering employment, retail trends and women in business. She is CEO of GrowBiz Media, a media company that helps entrepreneurs start and grow their businesses. Visit her blog, SmallBizDaily, to get the scoop on business trends and free TrendCast reports.

15 Reactions
  1. Does this mean that I can convert my LLC to a S Corp, hire myself as an employee now, and hire my wife and take 2 $5000.00 credits. I could see that being hugely abused.

  2. If these are incentives, doesn’t it mean the current system is full of disincentives? Maybe we should get rid of those permanently instead of these temporary measures.

  3. Lori Harris-Height

    A close friend sent me this video, If you havn’t see it,it is worth looking at to see what local businesses are saying.

    As a smaller, small business I need monetary assistance.

  4. Nice job on this post!

    Obama and his adminstration seem to be completely out of touch with the needs of small business owners. I agree that many of these proposals may be too little, too late to help those who are struggling to operate and grow, nor will they do much to stem the flood of business closures and bankruptcies.

    Business owners need access to credit/capital… and fast!

  5. Rieva, you did a nice job on this topic.

    However, I have to say I am very concerned about the spending on the Federal level. It is out of control.

    Using TARP funds is not a good idea. We should shut down TARP.

    And ultimately, if we just keep adding programs it does nothing but RAISE our taxes. So if you ask me, it’s a case of give with one hand, take away with another.

  6. Rieva,

    Thank you for your update!

    You know, the International Franchise Association does one thing really, really well; They help keep the franchise industry top of mind on Capitol Hill.

    Recently, I posed a question to Matt Shay, (The head of the IFA)during a conference call about franchise lending, concerning the lack of two words being used by anyone that’s discussing small business financing. I asked Matt why nobody is saying anything about the banks providing much needed loans to start-ups. (THOSE two words) He told me that they are trying to get start-ups some help also.

    I don’t hear it. I certainly don’t see it. What I see, is that banks are still looking for ways to turn loans down.

    The talk concerning small business lending is still centered around existing small businesses that need money to stay afloat, or to expand. I am certainly for that!

    Start-ups are also an important part of our economy, and I will continue to push that fact. Can I get some help and/or ideas from the Small Business Trends Community?

    The Franchise King

  7. I think, while not perfect, this could be a good first step. It’s clear to me something needed to be done to help spur small business growth. Whether this program will boost startups or help shore up existing businesses–only time will tell.

  8. And again or as usual unless you have employees you get zip.. this was the same as the incentives under Bush self employed with no employees are invisible and don’t count so don’t get.

  9. Hi Rieva
    Thanks for being our eyes and ears about Washington and small business help we might get from the powers that be.
    Made me think of that post that Melinda Emerson just wrote here:
    about Will 2010 be the year of the Startup?

  10. Virtually all of the above are aimed at helping larger businesses over 20 employees – none of them will help the small guy.

    This morning the Administration announced it would “increase support” for commercial real estate loans and “increase the limit” on SBA Express Loans. This is the same non-solution they have employed a dozen times in the last year with the same non-result.

    If a starving hostage sees 2 sandwiches through cage that they can’t get to, how does it help them to increase those out-of-reach sandwiches to five? That’s exactly what the government has been doing for 15 months now – constantly increase the “support” and “size” of potential loans, while doing nothing to actually get that money into the hands of small businesses.

    How does increased support and increased size for loans small businesses can’t get help anyone? Nearly half of the paltry $255 million ARC loan program has still not been lended to anyone nine months after the program started. How does throwing another $30 billion in TARP funds into the pot of inaccessible money help a small business owner (under 20 employees) get a loan?

    The most surprising thing in all this is how the Administration thinks doing the same thing over and over will get them a different result. The second most surprising thing is that they think that continuing to pontificate, make speeches, gather experts, have forums, and create photo ops will actually make small business owners think they are doing something.

    The #1 job creation sector is under 10 employees and #2 is companies with 11-20 employees. Nothing the administration has done so far has done anything to get lending going for that sector.

  11. Here is a good idea for small conmpanies looking for small group health insurance! Many small businesses can go in with other small businesses to get a better deal. Because insurance premiums are based in part on the number of people in the plan, more people means a better rate. Many small business owners get together with others for a brokered insurance plan that covers the employees of several companies. This may seem a little extreme but wait till one of your employees fall pregnant or have an accident, claims go up significantly for small bussines