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Tax Issues Related to Small Business Job CreationThe text below is an excerpt from the complete testimony. Read the full written testimony in PDF format. AbstractEric Toder testified before the Senate Committee on Finance on how recently proposed incentives for small business may help economic recovery. These incentives are only a small component of broader policies to accelerate recovery from the deep recession we have experienced in the past two years and reduce unemployment. IntroductionThe criteria for assessing tax policies to promote economic recovery differ from those used to assess how policies might affect sustained economic performance and growth. With unemployment still around 10 percent of the labor force, the most important immediate need is to increase demand for goods and services in the U.S. economy. Over time, we need to reform the tax system so that it is fairer, simpler, and more conducive to economic growth. If more revenues are needed to close a long-term budget gap, we should look to tax policies that do not retard the saving and investment, including investment in human capital, needed to add to the nation?s wealth and productive potential. But over the next year or two, we need instead to encourage personal and business spending so that we can bring unemployment down more rapidly. The challenge is how to provide more fiscal stimulus in the short run, while taking credible steps to persuade financial markets worldwide that we have the discipline to reduce our deficits once the economy has recovered. For immediate job creation, the size of the overall fiscal stimulus matters more than its composition. And both small and large businesses will benefit from policies that increase demand for goods and services. But not all tax cuts have the same effects on the pace of recovery. Policies that provide tax cuts to those consumers and businesses most likely to spend them quickly will do the most to accelerate recovery. I comment on three tax incentives in the president's fiscal year 2011 budget that are designed to help small businesses - the targeted jobs tax credit, the extension of increased limits on Section 179 expensing, and the eliminating of capital gains taxation on small business stock. The Tax Policy Center has recently posted a summary and assessment of these and other tax proposals in the president's budget. |
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