Menendez Calls for Tax Relief for NJ Small Businesses to Hire, Buy New Equipment, Increase Wages
Urges Republican colleagues to pass small business tax relief bill following debate in Senate
July 11, 2012
Washington – U.S. Senator Robert Menendez today urged Senate Republicans to join Democrats in passing the Small Business Jobs and Tax Relief Act of 2012 which would create an estimated one million new jobs across the country, including nearly 30,000 in New Jersey, according to a new independent report by the Regional Economic Models, Inc (REMI). The Senate yesterday voted to proceed to debate on the measure.
“When it comes to driving our economy and creating new jobs, our small businesses are the real engines,” said Menendez. “We have nearly 200,000 small businesses in New Jersey. Congress must pass this bill to make it easier for these job creators to succeed, grow and hire.”
Menendez added: “I’m pleased my Republican colleagues are allowing this critical jobs bill to come to a debate so Americans can see the stark difference in our proposals to help give a boost to small businesses. My fellow Democrats and I are fighting for common sense, targeted tax relief to put money back in the pockets of true job creators. Republicans’ broad and costly alternative would pad the profits of the mega-rich and special interests under the guise of small business support. I hope this debate will change their course, leading to action and progress, rather than rhetoric and posturing.”
Under the Senate Democrats’ legislation, business owners who hire new workers or give raises to current employees would get a 10 percent tax credit. With a maximum increase in eligible wages of $5 million per employer and the amount of the credit capped at $500,000, the benefits of this tax credit will be targeted on America's small businesses. This legislation would also cut taxes for firms that invest in new equipment, allowing more than 2 million businesses to grow faster.
Congressional Republicans propose an across-the-board 20 percent income tax deduction for all businesses that employ fewer than 500 people all businesses. Under this proposal, nearly half of the tax cuts would go to millionaires and billionaires like hedge fund managers and celebrities, while giving actual small business owners with annual income of $200,000 or less – more than 75 percent of true small business owners – only 16 percent of the benefits.
Click Here for a copy of REMI’s nonpartisan analysis which projects that nearly two-thirds of new job creation under the Small Business Jobs and Tax Relief Act of 2012 would come from small businesses; manufacturing, construction among industries that would get biggest boost.
Summary of the Small Business Jobs and Tax Relief Act
1. Creates an Incentive For Small Businesses to Add New Jobs This Year.
Although the economy is recovering from a severe economic recession, a tax credit designed to stimulate job creation and wage increases could help put more Americans back to work and provide tax relief targeted at America's small businesses. This proposal would provide a 10 percent income tax credit on new payroll-through either hiring or increased wages-added in 2012. With a maximum increase in eligible wages of $5 million per employer and the amount of the credit capped at $500,000, the benefits of this tax credit will be targeted on America's small businesses.
- CBO Deems It Effective Way to Spur Growth and Increase Hiring. The Congressional Budget Office has determined that proposals like this, which would reduce the cost to businesses of adding employees or increasing payroll, "would have the largest effects on output and employment per dollar..." compared to those that "affect businesses' cash flow but would have little impact on their marginal incentives to hire..." [CBO, 11/15/2011]
- Leading Economists Support Tax Relief for New Payroll. Former Vice Chairman of the Board of Governors of the Federal Reserve System Alan Blinder has endorsed the idea as a job creator, proposing that "the basic idea is to offer firms that boost their payrolls a tax break. As one concrete example, companies might be offered a tax credit equal to 10% of the increase in their wage bills (over 2011 levels, say). No increase, no reward." Other prominent economists who have endorsed the concept of increased payroll incentives include Paul Krugman and Mark Zandi. [Wall Street Journal, 7/12/2011; New York Times, 1/20/10; Moody's, 9/9/2011]
2. Extends 100-Percent Depreciation Deduction For Certain Property.
Typically, businesses expenditures are tax deductible in the year in which they are made, except for major purchases (such as large equipment or buildings), which must be written off over many years. One hundred percent depreciation allows businesses to write off the entire cost of major purchases in the year they are made rather than depreciate those expenses over many years. By accelerating in time the recovery of investment costs through "bonus depreciation," additional first-year deductions for new investment lower the after-tax costs of plants and equipment. This encourages new investment and promotes economic recovery. Senate Democrats propose extending 100 percent first-year depreciation for one year, effective for qualified property acquired and placed in service before January 1, 2013 (or January 1, 2014 for certain longer-lived and transportation property).
- Bonus Depreciation is a Bipartisan Approach to Growing the Economy. Bonus depreciation has traditionally garnered bipartisan support:
- The Job Creation and Worker Assistance Act of 2002 was introduced by House Republicans and passed the Senate by a vote of 85 - 9. [Vote 44, 3/8/02]
- The Tax Relief, Unemployment Compensation Reauthorization and Job Creation Act of 2010 expanded bonus depreciation to 100 percent. The bill was passed in the Senate by a vote of 81 - 19. [Vote 276, 12/15/10]
- Last December, the House Republicans overwhelmingly voted for an extension of 100 percent bonus depreciation in H.R.3630. [Vote 923, 12/13/11]
- Bonus Depreciation is a Proven Way to Help Small Businesses Invest and Grow. According to the U.S. Department of the Treasury's Office of Tax Policy, extending bonus depreciation will provide a tax cut to over 2 million businesses. In addition, the analysis estimates that 100 percent expensing reduces small businesses average cost of capital across all investment by more than 75 percent. [U.S. Treasury Office of Tax Policy, 11/2010]
- Economists Consider Bonus Depreciation One of the Most Productive Ways to Boost GDP. There is substantial empirical evidence that accelerated depreciation boosts business investment. For example, an analysis by the Institute for Policy Innovation estimated that every $1 of tax cuts devoted to accelerated depreciation generates about $9 of GDP growth. [Institute for Policy Innovation, 10/10/2001]
- Businesses Add Jobs When They Make Capital Investments. Studies by economists across the political spectrum have found that earlier, less generous versions of bonus depreciation have created 2 to 3 hundred thousand jobs. [American Economic Review, 7/2008]
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