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CFOs generally praise the new law, but some say it won't compensate for the loss of Bush-era tax cuts.
Roy Harris, CFO.com | US
October 18, 2010
While CFOs see lots to like in the Small Business Jobs and Credit Act signed into law last month, many complain that its benefits don't offset the injurious effects of other White House tax and health-care-related policies.
"The new act certainly makes a difference by increasing access to lending," says Dennis Reinoehl, CFO of Indianapolis-based Waddell Power, a wholesaler of batteries to companies in the Midwest. The 61-employee company, which has slowly been boosting its workforce after five layoffs in May 2009, may well accelerate hiring a bit because of the stimulus, he tells CFO.
But in a Washington environment that Reinoehl believes "is just antibusiness, and against anybody that tries to form a business," the new law lacks the business-boosting effect it could have at the firm. Among his biggest concerns is an element of the Patient Protection and Affordable Care Act that requires companies to file 1099 forms for purchases of $600, something he considers "atrocious and offensive."
Such underlying arguments among small-company CFOs — Waddell's annual revenues are around $15 million — keep enthusiasm muted for even the most promising provisions of the measure President Obama signed into law on September 27.
Besides extending SBA loan programs, one provision creates a $30 billion fund to channel capital to small banks. Others eliminate capital-gains taxes on small-company investments, expand the expensing of capital investments — increasing eligible investments qualifying for immediate write-off to $500,000 from $250,000 — and extend the 50% "bonus depreciation" through 2010.
The act also allows entrepreneurs to deduct the cost of their own and their families' health insurance for one year, and sets new rules to permit cell-phone deductions without hefty paperwork.
Any lending stimulus certainly will be timely. A report by the Federal Reserve Bank of New York released this week says that of 428 small-business owners surveyed in June and July, 59% said they were seeking credit, with half of them having been denied.
But small-business advocates say the bill's benefits wouldn't allay the pain from letting the Bush-era tax cuts for individuals expire, as they are set to do at the end of the year. "About 75% of small businesses are registered as S corporations or LLCs, so they pay at the individual rates," points out Bill Rys, tax counsel for the National Federation of Independent Business (NFIB), which speaks for smaller companies.
In his 2011 budget, President Obama proposed making the tax cuts permanent for all but the top two tax brackets. The Administration argues that only 3% of small businesses would be affected by higher rates. But the NFIB contends that the small businesses most likely to face tax increases would be those with between 20 and 250 employees, which collectively account for more than 25% of the nation's workforce.
"I just wish [Washington] would do a major overhaul of the whole taxing structure, rather than short-term incentives," says Rick Bloomer, CFO of Wichita-based flooring retailer and wholesaler Cap Carpet. "Then, maybe everybody would know what the playing field is, and what the rules are, so we could get about our business."
Nonetheless, Bloomer, too, likes parts of the Small Business Act. "I think from the SBA standpoint there are some nice programs out there that we hopefully will be able to take advantage of by the end of the year," he says. "We have a development project, for additional space in one of our markets," and loan terms available under the new law could be "much more favorable than they have been."
Don McLellan, CFO of Los Angeles-based entertainment public relations firm MPRM, thinks the stimulus under the new act could encourage several hires to expand the company's 33-person workforce (down from 60 people in 2006). "We're looking for a couple of rainmakers," he says, "and if the act provided a benefit for hiring them, we would enjoy that." But McLellan also harbors his own personal concerns about how serious the Administration is about aiding small businesses.
Waddell Power CFO Reinoehl thinks the measures in the Small Business Act don't represent Washington's true view of entrepreneurs. "The Administration and the President need to have a positive view toward business, and promote the message that America can grow and get bigger," he says. Certainly, he adds, that involves "reinstituting the Bush tax cuts."
Still, "as a business owner, you can't not like what's in this bill," says Gene Marks, whose consultancy sells software, and who himself writes several business columns. He singles out the
so-called Section 179 deduction, which doubles the limit for writing off capital investments. "If a client had thought about purchasing $250,000 of software, now he can purchase another $250,000," he says.
"I hate it when people say President Obama is a demon to small business," adds Marks, who describes himself as a registered Republican who voted for the President in 2008. "When it comes to small business, he's trying."