11/ 30/ 2007
Congress is once again considering comprehensive tax reform. A number of proposals, including those summarized below, will directly affect small businesses and offer an opportunity to provide some much-needed tax relief.
Taxes on Goods and Services
In 2005, Congress mandated that federal, state and local governments withhold 3 percent from payments for goods and services. The effective date is Jan. 1, 2011.
Bills have been introduced in the U.S. House and Senate to repeal the law. The House passed a bill that delays the implementation of the withholding provision until Jan. 1, 2012, and, at press time, the Senate had not acted. We're actively supporting full repeal of this measure, or an act to at least delay it.
Restaurant Depreciation
Congress is considering legislation regarding restaurant depreciation. Under current law, a 15-year depreciation applies to improvements made to existing restaurant and leasehold property rather than the more typical 39.5 years. The shortened depreciation period expires at the end of 2007, and NFIB is working to extend this expiring provision.
A 15-year schedule is a more realistic lifespan for these businesses. Restaurants are often open seven days a week for long hours each day. In light of the daily wear and tear, renovations and improvements are clearly needed more than every 39.5 years.
Other proposals being considered at press time would make the present 15-year depreciation schedule permanent and would also allow for new restaurant construction depreciation on this 15-year schedule. Securing this permanent change will help small-business owners better serve their customers and grow their businesses, and we are working hard to make this a reality.
Alternative Minimum Tax
Leaders in both parties in Congress are on the record in support of passing a patch to protect any more middle-class taxpayers from being ensnared by the individual alternative minimum tax.
The debate over the AMT patch is an annual affair, complicated this year by the pay-go rules of the new majority, which require tax relief to be offset as if it were new spending. With the cost of the patch this year estimated to be more than $50 billion, this is no small feat, and, at press time, congressional leaders were discussing waiving the pay-go rules.
We have long supported full repeal of the AMT and are urging Congress to at least pass the patch to restrain the reach of this increasingly harmful tax.
The Problem With the AMT
The individual Alternative Minimum Tax is a complex provision in the federal tax code that's fast becoming an issue for small-business owners. It requires taxpayers to calculate their taxes twice and then pay the larger amount, eliminating valuable deductions. While originally designed in 1969 to ensure that wealthy Americans pay a reasonable level of their income in taxes, the AMT is beginning to reach the middle class because of the combined effects of inflation and individual rate cuts.
Officials estimate that the number of taxpayers subject to the AMT will increase from about 1.8 million in 2001 to more than 41 million by 2013. In 2010, the tax will affect 37 percent of households with income between $50,000 and $75,000 and 73 percent of households with income between $75,000 and $100,000. The problem will only grow more difficult to fix as time goes on and the annual one-year patch Congress passes to shield more taxpayers from being affected becomes increasingly expensive.
