Obama Budget Carries Host of New Taxes on Small Business, Entrepreneurs

Alex Rivers — Tue, 02 Feb 2010 03:52:43 +0000

Monday, 01 Feb 2010 02:44 PM

While President Barack Obama is proposing to cut some taxes for companies that hire workers, his budget would raise a host of other taxes on businesses and wealthy individuals.

Obama’s budget would extend his signature Making Work Pay tax credit — $400 for individuals, $800 for a couple filing jointly — through 2011. The administration released the budget Monday.

But it would also impose nearly $1 trillion in higher taxes on couples making more than $250,000 and individuals making more than $200,000 by not renewing Bush-era tax cuts for them. Obama would extend tax cuts enacted under former President George W. Bush for families and individuals making less.

Obama revived numerous proposals for business tax increases that didn’t fare well in Congress last year, including a scaled-down plan to increase taxes on U.S. companies with major overseas operations, and plans to increase taxes on oil and gas companies.

His budget features $38 billion in tax cuts that he wants Congress to include in a new jobs bill. It would give companies a $5,000 tax credit for each new worker they hire in 2010. Businesses that increase wages or hours for their current workers in 2010 would be reimbursed for the extra Social Security payroll taxes they would pay.

The tax increases on wealthy families would fulfill a campaign pledge by Obama, who has blamed Bush’s tax cuts and Medicare prescription drug program for swelling the government’s debt by $7.5 trillion.

The Making Work Pay tax credit provides families with up to $800 a year and individuals up to $400 a year through small increases in their weekly pay. Extending the tax credit through 2011 would save them $31 billion.

Some of Obama’s other tax proposals would:

Raise the top two income tax rates for individuals, from 33 percent and 35 percent, to 36 percent and 39.6 percent, respectively. Unless Congress intervenes, those rates will rise next Jan. 1 when Bush’s tax cuts expire. That government would reap $365 billion over the next decade.
Limit the itemized tax deductions high earners can claim for charitable donations, mortgage interest and state and local taxes, raising about $210 billion for the next decade.
Increase the top capital gains tax rate from 15 percent to 20 percent for families making more than $250,000 a year and individuals making more than $200,000. The proposal would raise about $105 billion.
Make the research and experimentation tax credit permanent, saving businesses about $83 billion over the next decade.
Extend a provision allowing businesses buying equipment such as computers to speed up depreciation through 2010, saving them $20 billion over the next decade.
Impose a “financial crisis responsibility fee” on large financial institutions, raising $90 billion over the next decade.
Repeal a widely ignored law that taxes the personal use of company-issued cell phones like other fringe benefits, saving taxpayers $2.8 billion over 10 years.
Restrict the ability of international companies to defer taxes on profits made overseas, raising about $26 billion over the next decade.
Impose a total of about $39 billion in tax increases on oil, gas and coal companies over the next decade.
Change the way profits made by investment fund managers are taxed, raising an additional $24 billion over the next decade.

Small-business bankruptcies rise 81% in California

Alex Rivers — Wed, 23 Dec 2009 02:31:00 +0000

With credit tight and consumers still pinching their pennies, many business owners find they can’t go on.

By Nathan Olivarez-GilesDecember 22, 2009

California businesses can't keep going - more jobs to be lost as Democrats plan to spend trillions focusing on health care, not jobs.

The Obama administration’s new plan to give a boost to small businesses reflects continued trouble in that sector, which is facing new failures even as much of the nation’s economy is stabilizing.

As credit lines have shrunk and consumers have cut back on spending, thousands of small businesses have closed their doors over the last year. The plight of struggling firms has been aggravated by the reluctance of banks to lend money, said Brian Headd, an economist at the Small Business Administration’s office of advocacy.

“While bankruptcies are up, overall, small-business closures are up even more,” Headd said.

California has been particularly hard hit. The latest data show small-business bankruptcies up 81% in the state for the 12 months ended Sept. 30, compared with the previous year. Filings nationwide were up 44%, according to the credit analysis firm Equifax Inc.

The actual number of small businesses in trouble is probably higher, experts said, because many owners file for personal bankruptcy rather than seek protection for the business.

Dennis McGoldrick, a bankruptcy lawyer in Torrance, said his clients are all stuck in similar situations — capital is hard to come by, customers are tough to attract and debt is piling up.

“We can’t keep up,” McGoldrick said. “There’s more people that want to come in every day than I can see.”

Cecily McAlpine, who filed for bankruptcy protection for her Cold Stone Creamery franchise this spring, said the experience was humiliating but she had no choice.

Receipts at the fledgling Compton ice cream shop plunged dramatically during the recession, and by late 2008 she was paying her employees out of her pocket.

“When the refrigerator died, that was it; I’d just had it,” McAlpine said. “That was the day I broke. I just started throwing stuff away.”

McAlpine recently withdrew her bankruptcy filing after selling all the store equipment and paying off her creditors. She is slowly paying off some back-rent and utility debt, and will officially dissolve her business in the next couple of weeks, she said.

“I still feel scarred and like a loser,” she said. “Even though I’m not in it anymore, it’s still there.”

Recognizing the problems of business owners like McAlpine, the Obama administration has proposed using federal stimulus money to help funnel more loans to small businesses. The White House has also asked Congress to eliminate capital gains taxes for one year on new investments in small-business stock, and called for a new tax incentive to encourage small businesses to hire more employees.

On Dec. 14, Obama called a meeting of executives of Wells Fargo & Co., Citigroup Inc., Bank of America Corp. and nine other large banks, and told them that they owed it to the nation to make more loans to small businesses and help rebuild the economy.

In California, the need is great.

Over the last year, the Los Angeles, Riverside/San Bernardino and Sacramento metropolitan areas have led the nation in small-business bankruptcy filings, said Tim Klein, a spokesman for Equifax.

About 19,000 small businesses filed for bankruptcy in California during the 12 months ended Sept. 2009, up from 10,500 the previous year.

During September alone, 2,229 small businesses filed for protection, up from 1,503 filings in September 2008, the firm reported.

Kathleen March, a bankruptcy lawyer in Los Angeles, said she often pushes her clients to file for personal bankruptcy instead of a business filing because it’s easier.

Many people also close down their businesses thinking that will solve their problems, only to find their companies’ debt lives on, March said.

“The norm is if you’re running a small business, you will have to either cosign or personally guarantee the significant debts,” she said. “The business itself can shut down, but the people cosigned all the debts. So, the individuals are then saddled with these huge debts.”

A client who owned a surf shop was paying for business expenses from the client’s own funds long before filing for personal bankruptcy, she said.

“In this economy, anything that isn’t a necessity is a tough business to be in,” March said. “And the majority of my clients have waited too long to file for bankruptcy and in the process made things worse on themselves financially as a result.”

nathan.olivarezgiles@latimes.com

kurtschemers » small business

Obama Budget Carries Host of New Taxes on Small Business, Entrepreneurs

Small-business bankruptcies rise 81% in California

With credit tight and consumers still pinching their pennies, many business owners find they can’t go on.