Did Obama Really Cut Small-Business Taxes 16 Times?

October 30, 2010, 8:00 am

By ROBB MANDELBAUM

On Monday, President Obama visited yet another small business, American Cord & Webbing, which manufactures hardware for outdoor gear in Woonsocket, R.I. He was there to talk about his two principal accomplishments on behalf of small businesses — easier access to loans and tax relief. He told the audience, and the assembled reporters: “We’ve now passed, with the help of these outstanding members of Congress, 16 different tax cuts for America’s small businesses over the last couple years.”

The assertion that the Obama administration has cut taxes for small business 16 times might surprise some entrepreneurs — which of course is why Mr. Obama made the trip in the first place. But the White House backed the claim with a fact sheet. Here, for the record, are the taxes the administration says it has cut, in its words:
• A new small-business health-care tax credit
• A new tax credit for hiring unemployed workers
• Bonus depreciation tax incentives to support new investment
• 75 percent exclusion of small-business capital gains
• Expansion of limits on small-business expensing
• Five-year carryback of net operating losses
• Reduction of the built-in gains holding period for small businesses from 10 to seven years to allow small business greater flexibility in their investments
• Temporary small-business estimated tax payment relief to allow small businesses to keep needed cash on hand

The White House also identifies these provisions in last month’s small-business jobs bill (see this post for a brief description of each):

• Zero capital gains taxes on key investments in small businesses
• The highest small-business expensing limit ever –- up to $500,000
• An extension of 50-percent bonus depreciation
• A new deduction for health care expenses for the self-employed
• Tax relief and simplification for cell-phone deductions
• An increase in the deduction for entrepreneurs’ start-up expenses
• A five-year carryback of general business credits
• Limitations on penalties for errors in tax reporting that disproportionately affect small business

Taking a closer look at this list, The Agenda notices a couple of things. First, some of those provisions are not all that “different.” The list includes three measures in the small-business jobs bill that extend (and in two cases expand) relief in the 2009 stimulus for which Mr. Obama also takes credit. (The Obama administration overlooks another extension and expansion in the recent jobs bill: a further reduction in the built-in gains holding period to five years.)

More substantively, half of these “tax cuts” are actually incentives that reward businesses for taking actions they might not otherwise take — in other words, you have to spend money to get the tax benefit. For example, only businesses that already provide health insurance to their employees now would consider the health-care credit a tax cut. Of course, while firms using the incentive for the first time would see their expenses rise, the credit would offset 35 to 50 percent of the added cost. The main beneficiaries are businesses making big investments (and perhaps those caught surreptitiously investing in tax-shelter scams — the last item on the list, translated into plain English). Encouraging such investments may be a worthwhile public policy goal, but in this economic climate, the number of companies that will participate is likely to be limited.

In other words, those inclined to be suspicious of Mr. Obama probably won’t take much comfort in this enumeration.