Democrats and Republicans Offer Competing Tax Break Proposals for Small Businesses

Several weeks ago, President Obama put his support behind a bill that would provide a 10% tax credit for small businesses that create jobs or increases wages in 2012. The tax credit would count against up to 10% of the increase in 2012 wages from new hires or increased wages, with a cap on the credit at $500,000 (although the wages are also capped at the top Social Security bracket of $110,00). In addition, the President’s proposal extends the 100% expensing provision, which allows businesses to deduct the full value of investments at once instead of letting them depreciate over time.

The Republican caucus in Congress has put forward its own small business tax break proposal. Under the Republican proposal, companies with fewer than 500 employees could deduct 20% of their income in 2012, limited to half of the cash wages paid to employees. The White House downplayed the Republican proposal, claiming that it would primarily benefit white collar businesses and wealthy Americans, while criticisms levied against the President’s proposal included the assertion that a simple tax credit for hiring workers or increasing wages will not actually spur small business owners to do the same.