Senate tax duel centers on small business

With the economy sputtering, Democrats have signaled they will turn a September Senate showdown on a small-business lending bill into a key test of who is working to boost jobs. But Republicans instead are focusing attention on the impending expiration of Bush tax cuts, which they say would hurt those small businesses.

On Wednesday, Vice President Joseph R. Biden Jr. fired back at Republicans’ tax claim, calling it “a bunch of malarkey” and saying that the White House wants to extend most of the Bush tax cuts - just not those that would help the highest-income families.

“Our colleagues on the other side think we should extend the whole tax cut, to the people who are in the top 2 percent,” Mr. Biden said at a roundtable with local business owners in Washington. “To extend those tax cuts costs $700 billion over 10 years at a time when we are worried about the economy, when long-term we have to be worried about deficits.”

But with the economy shaping up as the dominant issue headed into November’s elections, Republicans and even some Democrats say the tax cuts should be allowed to remain on the books, at least in the near term, so as not to hurt businesses that create the most jobs.

President Obama says high-income taxpayers - individuals making more than $200,000 and families with incomes higher than $250,000 - can afford to take the hit, and that the government needs the money. Mr. Biden said Wednesday that 50 percent of those tax cuts are going to people with average incomes of $8.2 million.

Business advocates, though, say that because of the way they are structured, many small businesses pay taxes as individual filers, thus the tax increases will hit them at a time when they are already suffering.

“A lot of small businesses right now, they’re struggling with sales. There’s a lot of uncertainty and we’ve done some polling that said the No. 2 concern for small businesses is the uncertainty about where the tax rates will be and what Congress is doing,” said Chris Walters, a lobbyist for the National Federation of Independent Business (NFIB).

An analysis by the Joint Committee on Taxation found ammunition for both sides of the debate.

Only about 3 percent of the country’s 30 million small businesses would be affected, but the taxes would apply to about half of all small-business income. The difference comes because most small businesses earn so little - but the largest small businesses employ hundreds of people and make up a giant percentage of total small-business income.

With the unemployment rate at 9.5 percent - 1.5 percentage points higher than the administration had promised when the stimulus passed - the administration is on the defensive over its economic record.

On Tuesday, House Minority Leader John A. Boehner, Ohio Republican, called on Mr. Obama to fire his economic team and said it was time to put “grown-ups” in charge.

In a pointed rejection of that call, the White House on Wednesday announced that Mr. Obama took time out of his vacation on Martha’s Vineyard to hold a conference call with his economic team. In a statement, the White House said the president, Treasury Secretary Timothy F. Geithner, Council of Economic Advisers Chairman Christina Romer and National Economic Council Director Lawrence H. Summers talked about how to handle tax cuts and about pushing for a small-business lending bill that stalled in the Senate just before lawmakers adjourned for their summer recess.

The bill would create a $30 billion fund to pump capital into smaller community banks, which tend to lend to small businesses. The measure includes $12 billion in small-business tax breaks.

Democrats will try to pass the bill again when the Senate reconvenes in September. This month, Mr. Obama signaled that they will try to turn the measure into a referendum on which party is making efforts to boost jobs.

They say the bill is needed because banks are reluctant to issue loans to some small businesses. Joel Mehr, co-owner of Pete’s New Haven Style Apizza and one of the business owners who spoke with Mr. Biden on Wednesday, said he had to go to 20 banks before finding one that would give him a loan to open in a third location.

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