Use Stimulus Money for Tax Relief

By Peter Roff, Thomas Jefferson Street blog

In the battle of ideas over the best ways to stimulate the still lagging U.S. economy, South Dakota Sen. John Thune is attempting to get to the head of the pack by proposing a series of tax incentives to help small business.

As part of the current Senate debate over the so-called "tax extenders bill," Thune has proposed a series of incentives designed to help small business invest in new capital and hire more workers.

Specifically, Thune is asking the Senate to approve language that would:

• Permanently increase small business expensing, which would lessen the cost of investing and free up money to hire additional workers and to expand operations;

• Add one additional year of bonus depreciation through 2010, allowing businesses of any size to write off more of the cost of new equipment earlier than they otherwise would;

• Eliminate capital gains taxes for small business investment, which would help newly created firms find the capital they need to create jobs;

• Create a 20 percent deduction for small business flow-through income which, he argues, would provide certainty to small business owners and lessens the impact of the tax increases proposed by Democrats by offering a deduction for small business income that is taxed at the individual level.

• Prevent Davis-Bacon from applying to any projects funded by stimulus money, which the Government Accountability Office has determined, for example, is a key impediment to spending weatherization funds under last year's stimulus bill.

To do all this, Thune is calling for the redirection of funds that remain unobligated from the 2009 stimulus package. According to Recovery.gov, only 37 percent of non-tax stimulus funds have been spent to date, Thune says, while the Congressional Budget Office has found that $121 billion (or 21 percent of the appropriated or direct spending) will not have been spent by October of next year.

"Last year's stimulus bill was slow and untargeted; much of the money remains unallocated. My amendment would allow Congress to redirect taxpayer dollars in a more effective manner by targeting them at small businesses with a mixture of short-term incentives and meaningful, permanent tax relief that will provide certainty and incentives to invest and hire. True job creation doesn't happen when the government adds jobs," Thune said. "It grows when small businesses are given the incentives to thrive."

"Small businesses are the economic engines that drive job growth, both in South Dakota and across the country," Thune said when introducing his proposal. "My amendment creates new incentives in the tax code and expands existing ones, making it easier for small businesses to purchase new equipment and hire new workers."

Whether the Senate chooses to go along with Thune's proposal or not, the fact that it has been offered is seen in some quarters as further confirmation that the economic recovery President Barack Obama promised would flow from the stimulus package has not arrived. 

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