Last week marked the swearing-in of all new Members of Congress and the official change in control of the House and Senate from Republican to Democratic hands. House Democrats elected Nancy Pelosi (D-CA) Speaker of the House and Senate Democrats elected Senator Harry Reid (D-NV) Senate Majority Leader.
On the Republican side, leadership was also elected - Rep. John Boehner (R-OH) is the Minority Leader of the House and Rep. Roy Blunt (R-MO) is Minority Whip – final committee assignments were also announced. Republican members filled the remaining two vacancies on the tax-writing Ways and Means Committee with Reps. Patrick Tiberi (R-OH) and Jon Porter (R-NV).
Rep. Tiberi represents the 12th Congressional District of Ohio - the middle of the state to the north of Columbus, including Delaware County and parts of Franklin and Licking Counties - while Rep. Porter represents the 3rd Congressional District of Nevada, including the Southern tip and parts of Las Vegas, Henderson and Lake Mead.
S Corp members with operations or significant investments in those states are asked to alert us.
Minimum Wage and Small Business Tax Relief as S Corp members know, the House plans to pass a minimum wage increase as part of their “First 100 Hours” legislative push. The bill would raise the minimum wage from the current $5.15 an hour to $7.25 over the next couple years and is scheduled to be taken up Wednesday, January 10th.
On the Senate side, things may proceed slightly more slowly but with a broader effort that includes tax relief. On Wednesday the 10th, the Senate Finance Committee will hold a hearing on what sort of small business tax breaks should accompany an increased minimum wage, apparently with a goal of marking up the proposals on the 17th.
The idea of a small business tax package is to offset the increased labor costs a higher minimum wage imposes on employers most at risk — America’s small and family-owned business community. As America’s most popular form of small business corporation, S Corps have lots at stake in this debate, and we’re working with our friends to ensure S Corp priorities are recognized. More on this to follow.
President Promotes Extending Tax Relief — House Raises a Barrier
In a very unusual move, the President had his own op-ed published in last Wednesday’s Wall Street Journal outlining his domestic policy plans for the upcoming Congress. Chief among his priorities is to make permanent the tax relief enacted in the first six years of his Administration, including the lower marginal tax rates, small business expensing, and health care provisions enjoyed by S corporations and other closely-held businesses. The President wrote:
It is also a fact that our tax cuts have fueled robust economic growth and record revenues. Because revenues have grown and we’ve done a better job of holding the line on domestic spending, we met our goal of cutting the deficit in half three years ahead of schedule. By continuing these policies, we can balance the federal budget by 2012 while funding our priorities and making the tax cuts permanent. In early February, I will submit a budget that does exactly that. The bottom line is tax relief and spending restraint are good for the American worker, good for the American taxpayer, and good for the federal budget. Now is not the time to raise taxes on the American people.
For S Corps of all sizes, extending the tax relief is a matter of great importance. The marginal rates that apply to individual taxpayers apply to S Corp income as well, and while the focus has always been on the top 35 percent rate, the fact is smaller S Corps would be hurt too, as all the rates would revert to their pre-2001 levels.
While the President was advocating extending his tax relief, the House was approving new budget rules that will make it more difficult to extend existing tax provisions or initiate new ones. The new rules, under the title of PAYGO (for pay-as-you-go) will prohibit any bill affecting direct spending or revenues from increasing the budget deficit, which means future efforts to extend tax relief would need be offset with other tax increases or spending reductions.
With big tickets items like protecting families from the Alternative Minimum Tax and extending the R&E tax credit and other expiring provisions on the agenda, these new rules are going to put increased pressure on Congress to identify offsetting provisions that will raise revenues. Proposals like expanding the application of payroll taxes on S Corp income and eliminating IC-DISCs will likely be part of the discussion. Our job is it educate the new Congress as to why these ideas are bad for small businesses and bad for America.