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Senate Debates Small Business Tax Incentive Bill

Monday, July 8, 1996

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The Senate began debate on the small business tax incentive bill (HR 3448) Monday, but votes on amendments and final passage are not expected until Tuesday afternoon. The measure also proposes to increase the federally mandated minimum wage.

A non-controversial bipartisan amendment most likely will be attached to the tax component of the bill, and controversial amendments will be added to the minimum wage portion. An anticipated amendment exempting small businesses from the wage hike already generated a veto threat from the White House.

Once the Senate dispenses with amendments Tuesday, a final vote will be taken. If the wage hike is passed, Senate Assistant Majority Leader Don Nickles, R-Okla, warned he would oppose naming conferees on the proposal as long as Sen. Ted Kennedy, D-Mass., continues to oppose naming conferees on the unrelated health insurance reform bill (S. 1028).

Under the tax bill, small business expensing limitations would be increased (from $17,500 to $25,000), the research and experimentation tax credit would be prospectively extended, the possessions tax credit (for American companies that set up manufacturing plants in U.S.-owned possessions such as Puerto Rico) would be phased out, and the airline ticket tax would be reinstated.

Senators had until Monday morning to submit their proposed contributions to the bipartisan amendment, which is expected to contain relatively non-controversial and inexpensive provisions, congressional sources told , .

The still-developing leadership amendment would extend the research and development tax credit, the airline ticket tax and the expired Section 127 education deduction (for employers who provide tuition assistance for their employees) further than contemplated by the Finance Committee’s version of the bill.

The amendment under discussion also may contain miscellaneous pension simplification provisions, authorizing the Internal Revenue Service to use mathematical tests to verify dependency exemptions and filing status for certain tax returns, and a non-refundable 10 percent tax credit for education expenses incurred by small businesses.

Pressler Working On International Tax Reform: Senate Finance Committee member Larry Pressler, R-S.D., is working on an international tax reform bill that would be the Senate counterpart to the bill (HR 1690) offered by Rep. Amo Houghton, R-N.Y., and Rep. Sander Levin, D-Mich., in May 1995.

Pressler hopes to unveil the final version of the reform plan some time in July. Under the current version, the Section 956A excess passive asset provision would be repealed, the passive foreign investment corporations rules would be revised, the Section 1491 excise tax on outbound transfers also would be repealed, the foreign tax payment and credit rules would be simplified, and various other changes to the tax law affecting foreign businesses would be implemented.

Hearing On Tax Law’s Impact On Land Use Announced: The House Ways and Means Oversight Subcommittee will hold a hearing July 16 on the impact of the current tax law on the nation’s land use patterns.

"A number of provisions of current tax law have both intended and unintended consequences for land use," said Oversight Subcommittee Chair Rep. Nancy Johnson, R-Conn.

The public policy objective is clear in examples such as when the law allows owners of historic property to establish preservation easements before they die to minimize federal taxes and protect the property, she said.

In other instance, the policy may produce unintended results. "Some have argued that current cost recovery provisions discourage businesses from investing in urban areas," Johnson said, noting that equipment can be depreciated, but not land. "That often means that a greater portion of an investment in non-urban areas can be depreciated," she said.