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Proposed Budget Leaves Businesses with Questions

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NEW YORK (AP) — President Barack Obama’s proposed federal budget is a disappointment to the National Federation of Independent Business. The advocacy group that represents small companies says it leaves owners guessing about what to expect in the future on taxes and regulations.

Chris Walters, the NFIB’s senior manager for legislative affairs, says the proposed budget for the fiscal year that begins Oct. 1 doesn’t seek some tax law changes that would benefit small businesses. For example, it doesn’t raise what’s known as the Section 179 tax deduction for equipment purchases.

He also says the Obama proposal doesn’t increase the amount of money budgeted for the Small Business Administration to review new regulations that affect businesses.

Small business owners wanted to see more certainty in the regulatory and tax environment from Obama’s budget, Walters said in an interview with The Associated Press. Without more certainty, he said, it’s hard for businesses to plan for the future.

The budget proposal still has to make its way through Congress, which can be counted on to make changes. In the meantime, here’s a closer look at these issues:

Small business taxes

The Section 179 deduction, named for a provision in the Internal Revenue Code, is intended to benefit small businesses. It allows them to deduct up-front the cost of certain kinds of equipment rather than depreciate it over a period of years. During the financial crisis, the limit on the deduction was increased dramatically, to $500,000, to help small businesses and stimulate the economy. But this year, it’s down to $125,000, and in 2013, it falls back to $25,000, the level where it stood in 2003.

Walters noted that Obama’s budget message doesn’t change that downward progression. The NFIB wants the deduction to go back up to $500,000 and stay there. Walters said of business owners, “they need to plan their business.” The continual changes in tax laws make it hard for companies to plan for more than one year at a time — even though accountants urge their small business clients to do long-term financial planning.

More on this topic

Walters noted that there is a bill in the Senate that would raise the Section 179 deduction back up to $500,000. The deduction can be used on equipment such as computers, vehicles, manufacturing machines and furniture.

Estate taxes are another concern for small business owners who hope to have family members run their companies after they die. For 2012, the first $5.12 million of an estate’s value is exempt from the federal estate tax. Any amount above that is subject to a tax of no more than 35 percent. Under Obama’s proposal, there’s a $3.5 million exemption, and the tax rate is 45 percent. Estates include all property — real estate andpersonal possessions in addition to a business.

Walters said it can be more challenging under the proposal for many owners to keep the business in the family. Many might have to go into debt to pay estate taxes so they can hold on to the company. Walters said of owners, “they want to know over the next 10 years what their estate tax liability is going to be.”

With a tight job market, many business owners are now employing adult children who can’t find other jobs. Their concern is not just losing the business — it’s that their children could also lose their livelihood.


The SBA’s budget rises 3 percent, or $32 million, to $949 million under the Obama proposal. Walters noted that there’s no increase in the $9 million budget for the SBA’s Office of Advocacy, whose task is to consider whether federal and state regulations impose an unfair burden on small businesses. The office looks at regulations from the Occupational Safety and Health Administration, the Environmental Protection Agency and the new Consumer Financial Protection Bureau, among others.

Because of the lack of a proposed budget increase for the office, “we question the seriousness of the administration to protect small business from a regulatory burden,” Walters said.

Another source of uncertainty in the budget proposal, Walters said, is that it “doesn’t spell out any of the regulations they’re going to come out with over the course of the year.” This again means that owners aren’t sure what to plan for.