Weekly Legislative Round-Up
September 17, 2010
Earlier this week, Democratic gubernatorial candidate Lansing Mayor Virg Bernero claimed that Republican candidate Rick Snyder’s tax proposal would hurt small businesses.
Snyder has proposed eliminating the Michigan Business Tax and replacing it with 6% flat corporate tax. The Bernero campaign alleges that this proposal will hurt many small businesses that currently pay no business taxes or are taxed under a lower rate using the alternative profits tax.
SBAM has conducted a Q and A interview with Rick Snyder that will appear in our next edition of the Focus magazine. As part of that interview we asked him about how he would reform business taxes in Michigan.
Here is that excerpt:
How do you propose to reform Michigan’s tax system?
The first thing we need to do is eliminate the Michigan Business Tax and the job-killing tax surcharge. My plan cuts the taxes of every business in Michigan by at least $1.5 billion, but it would especially help small businesses and “Mom & Pop” shops on Main Street who currently pay the Alternative Profits Tax. Their tax rate would go from 1.8 percent to zero.
I would replace Michigan’s job-killing MBT with a 6-percent flat corporate tax on C-corporations and exempt S-corporations, sole-proprietorships and LLCs.
My plan is simple, fair and easy for businesses to follow. Take your federal taxable income, multiply it by 6 percent, write your check to the state and get on with running your business.
SBAM has endorsed Rick Snyder because we feel he has the better plan for turning Michigan’s economic doldrums around. Bernero’s claims have received a great deal of media attention and we just felt the need to set the record straight using Snyder’s own words.
The United States Senate this week passed the Small Business Jobs Bill that includes many provisions that will be helpful to small businesses. However, amendments to repeal or change the new 1099 reporting requirement were defeated.
SBAM and the National Small Business Association (NSBA) have been working all summer on educating Congress about the onerous addition to the healthcare bill that would add paperwork and costs to doing business.
The controversial new 1099 reporting requirement, which was included in the Patient Protection and Affordable Care Act, would require businesses to report to the Internal Revenue Service (IRS) any purchase from a vendor of goods or services worth $600 or more during the calendar year. The new requirements would be effective for purchases made in 2012 that will be reported on 1099 forms filed in 2013.
First, lawmakers voted 46 to 52 to block an amendment authored by Sen. Mike Johanns (R-Neb.), and supported by NSBA and SBAM, that would have fully repealed the 1099 reporting provision, and would have made more people exempt from having to buy health insurance by lowering the affordability exemption for the individual mandate.
Senators also managed to block the Democratic alternative sponsored by Sen. Bill Nelson (D-Fla.) that would have increased the threshold from $600 to $5,000 and exempted businesses with 25 or fewer employees from the new reporting requirement. Nelson’s amendment failed by a vote of 56 to 42, four votes short of the 60 needed to cut off debate.
For now the 1099 reporting requirements remain. However, there is expected to be more activity on this issue in the next couple of weeks. We will keep you posted.
As for the jobs bill, the Senate passed it on a 61-38 vote and the House is expected to take it up next week.
The bill includes the following provisions:
Small Business Lending Fund
The legislation establishes a $30 billion fund for small- and medium-sized banks with strong incentives to increase small-business lending. Contrary to opponents claims, this fund is not a bailout or TARP 2.0 as community banks must pass a stress test in order to participate.
SBA Lending Provisions
The bill extends the 90 percent guarantee on 7(a) loans and the elimination of the borrower fees on both 7(a) and 504 loans that was initially passed under the stimulus bill back in 2009.
Since these provisions expired at the end of May, there has been a dramatic decline in SBA lending – in June, the SBA approved just $647 million in lending. This is down two-thirds from the $1.9 billion it approved in May. This has resulted in a lengthy queue where small businesses are waiting to see if additional funds come through.
Today, only 59 percent of small businesses are able to obtain adequate financing for their business, down from 78 percent in August 2008, according to the NSBA Mid-Year Economic Report. This has huge implications on job creation – since 1993, when NSBA began asking these questions, there has been a direct correlation between access to capital and job growth—when capital flows more freely, small businesses add new jobs.
The bill also increases 7(a) loans from $2 million to $5 million, 504 loans from $1.5 million to $5.5 million, and microloans from $35,000 to $50,000
Self-Employment Tax on Health Care
The language includes a one-year (2010) deduction from self-employment taxes on the full cost of health insurance. Currently, self-employed individuals are prohibited from deducting health insurance from their self-employment taxes, resulting in an additional 15.3 percent tax that nobody else pays.
Section 179 Expensing
The bill will increase Sec. 179 expensing to $500,000 in 2010 and 2011—doubling the current limit, and raises the phase-out threshold to $2 million, up from $800,000.
The provision will restore through 2010 the 50 percent allowable depreciation on capital investments.
Both gubernatorial candidates have begun television ads to kick-off the general election component of the 2010 campaign. Latest polling indicates that Rick Snyder leads over Mayor Virg Bernero by 20 points or more.
The ads that are currently airing reflect this deficit in the polls. As Bernero tries to catch up, he is attacking Snyder’s business record. Snyder on the other hand is airing positive messages about himself and what he will do for the state.