Lots of budget related news in recent days with implications for small business taxpayers. First, the Congressional Budget Office weighed in last week with its analysis of the Obama budget outline and estimated that the Administration’s proposals, if enacted intact, would double the overall deficit over the next ten years.mThe numbers are truly staggering and should scare any reasonable person who plans to be a taxpayer over the next several decades. Starting with a deficit of around $1.8 trillion this year — easily the highest annual deficit since we were defeating Hitler — the ten year total is nearly $10 trillion dollars!

Obviously, deficits of this magnitude will have the effect of restraining efforts to increase Federal spending while placing additional pressure on Congress to raise tax burdens. That’s challenge number one for S corporation owners.

Next, both the House and Senate Budget Committees will take up their respective budget resolutions today, with the goal of getting a final budget in place before Congress breaks for the Easter recess in a few weeks.

For those who have bothered to look, the actual text of a budget resolution is disappointing. It’s primarily a list of budget functions and related spending numbers, most of which have little or nothing to do with the real process of establishing tax and spending policy.

The real meat in any budget is the total amount of discretionary spending allowed (the Appropriations Committee gets to divide it up from there), the overall ceilings on spending and floors on revenue, any reserve funds designed to protect specific initiatives from Budget Act points of order, and finally, and perhaps most importantly, any reconciliation instructions.

Reconciliation allows permanent changes in tax and mandatory spending to be enacted with a simple majority in the Senate, and usually signals what is really important to the leadership in Congress.

This year, the Senate chose not to include any reconciliation instructions while the House included them for health care reform. Cap and trade only got a reserve fund (see below for more on cap and trade), which reinforces the growing perception around town that of the three big reforms on the table — health care, climate change, and tax reform — the Administration and Congress have decided to make health care reform their priority for this year.

Small Business Roundtable

Last week, your S-CORP team spent a morning with House Small Business Committee Chair Nydia Velazquez, several other members of the Committee, and a large percentage of the small business organizations around town.

The point of the meeting was for Committee members to hear directly from small business groups on the issues important to them. Frequently mentioned topics included estate tax reform, LIFO repeal, depreciation and several deductions that are important when businesses have little or no income. Only two groups, your S Corporation team and the National Association of Manufacturers, raised the issue of individual tax rates and how they impact job creators.

Another S-CORP ally — Bill Rys from the National Federation of Independent Business — did a great job of making the same case on MSNBC the other day:

Visit msnbc.com for Breaking News, World News, and News about the Economy

Chairwoman Velazquez has been extremely proactive in making the small business perspective part of the debate in the House, especially when it comes to tax issues. Legislation she introduced last Congress included a number of small business friendly provisions, including full repeal of the non-resident alien restriction for S corporations (a priority of the S Corp Association).

With so many tax items on the table for this year and next, we expect to see many of the topics raised last week explored by the Committee in future hearings and really appreciate the willingness of Chairwoman Velazquez to reach out and listen to the concerns of the small business community.

Climate Change Coming

There’s the old line that everybody talks about the weather but nobody ever seems to do anything about it. Apparently, our friends over at the EPA don’t understand that it’s supposed to be a joke.

Last week, they sent the White House recommendations to make an endangerment finding for greenhouse emissions under the Clean Air Act. This finding is in response to the Supreme Court decision in Massachusetts vs. EPA.

If the White House signs off on the EPA’s recommendation — and all indications are it will within the next couple months — then that agency will have the ability to regulate an enormous percentage of economic activity taking place in the United States. If whatever you are doing has the potential to emit greenhouse gases into the atmosphere, then the EPA may have something to say about it.

We usually try to stick to tax policy here at the S Corp Association, but this issue is simply too big to ignore. Plus, the solutions being considered in Congress — primarily carbon cap and trade — are market based and would have the effect of placing a tax levy on carbon emissions.

Given the choice between the EPA regulating carbon under the forty year old Clean Air Act or Congress addressing it through a cap and trade system, many folks will choose cap and trade. For that reason, the failure of the Budget Committee to reconcile instructions for a cap and trade bill this year does not mean the issue will not come up. The EPA’s action last week may ensure that it does.