Bush Tax Cut to Benefit 23 Million Small Biz Owners, Group Says

By David Fein | July 7, 2008 | 8:29 PM EDT

(CNSNews.com) - The Bush administration's most recent economic stimulus package is being hailed by the Small Business Administration as a "very important" step in benefiting America's 23 million small business owners and encouraging economic growth.

Provisions in the Jobs and Growth Tax Relief Reconciliation Act affecting small business owners include:

-- New expensing rules, which quadruple the amount of equipment purchases a small business can immediately expense, rather than depreciate over time, from $25,000 to $100,000.

-- An increase in the first-year bonus depreciation deduction from 30 to 50 percent.

-- An acceleration of the tax cuts enacted in 2001, with the top rate falling from 38.6 to 35 percent.

-- A decrease in the capital gains and dividends tax. Americans in higher tax brackets will see their rate for capital gains and dividends fall to 15 percent beginning this year and remaining that way at least through 2007. Taxpayers in the 10 and 15 percent tax brackets will see their rates for capital gains and dividends fall to 5 percent this year and to zero in 2008.

"Lowering the capital gains and dividends taxes should help to lift the equity markets and spur investment," the SBA stated in a release. "The Treasury Department points out that this new legislation will immediately reduce the tax liability of 23 million small business owners, with an average tax cut of $2,209."

In the same release, SBA Administrator Hector V. Barreto emphasized that "small businesses are not only the engine that fuels America's economy; they are the first to invest extra revenue or tax relief back into their companies."

"By providing accelerated tax relief and increasing the expensing provision, small businesses across the country will be able to buy new equipment, hire additional employees and grow their businesses," Barreto stated. "And we believe growing businesses will translate into new jobs and economic revitalization across America."

President Bush echoed those comments this week during a meeting with small business owners in New Jersey. "The ability to expense capital dollars more quickly for small business and in greater amounts for small businesses is an incredibly important part of economic growth because small businesses provide most of the new jobs created in America."

The president's tax relief plan, however, is viewed as doing more harm than good by Andrew Lee, a federal tax and budget analyst for the Center on Budget and Policy Priorities (CBPP).

"While it's likely to have some positive effect because it's putting money back into the economy, it does so at a larger cost than is probably necessary and if things are extended, it's probably going to have a negative long term impact because of the deficit financing," Lee said.

The Congressional Budget Office recently estimated that this year's federal budget deficit would total $400 billion.

Lee said "the best way to stimulate the economy was probably to target the demand side and try to get more money into the hands of households that would spend additional funds," particularly "low-income households or unemployed households as well as state government."

But the philosophy of letting government stimulate the economy by spending more money is not shared by Chris Edwards, director of fiscal policy studies at the Cato Institute.

"I think there may be very short term affects of that, but you don't get long term growth from that," Edwards said. "I think that if you lower the cost of production, which is what supply side economics is all about, you will get more supply in the short run and the long run, so the GDP (gross domestic product) will grow faster and you'll have a larger economy, which I think is ultimately really good for everyone at every income level."

The president's latest tax cut, Edwards said, "Is in a lot of ways a supply side oriented bill. So I think we'll get short and long term growth."

Raymond Keating, chief economist of the Small Business Survival Committee, said it's important to realize that investment is what drives the economy forward - "its risk-taking, its entrepreneurship and those tax cuts certainly provide incentives for those to occur."

William Gale, senior fellow of economic studies at the Brookings Institution, agreed with Lee - warning that increasing the federal deficit would cancel out many of the benefits of the stimulus package. "This is a tax cut that doesn't really do anything well," Gale charged.

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