President’s 2016 Budget ReleasedFebruary 4, 2015
Following through on the “middle-class economics agenda” he laid out in his Jan. 20th State of the Union address, the president’s FY 2016 budget calls for a number of changes that will impact small business, namely a host of tax reforms, improvements to SBA programs, immigration reform, and cybersecurity. President Barack Obama’s FY 2016 budget also calls for an end to sequestration, relying instead on closing unnecessary spending and various loopholes for cost-saving measures.
Building on his 2012 framework for business tax reform, President Obama’s FY 2016 budget calls for lowering the top corporate tax rate from 35 percent to 28 percent, providing a 25 percent rate for domestic manufacturing income, reforming international tax rules, simplifying and reducing taxes for small businesses and includes some base broadening proposals.
The budget proposes to increase the top rate on capital gains and dividends income to 28 percent for joint filers with incomes above $500,000 and proposes to change the estate tax carryover basis rules to limit the ability to “step-up” the basis of inherited property. The limitations on step-up in basis for inherited property would exempt capital gains of up to $200,000 per couple, and provide a separate $500,000 exemption for personal residences. No capital gains tax would be due on inherited small, family-owned and operated business, unless and until the business is sold.
While the budget proposal does not address all of the several dozen temporary tax deductions, credits, and exclusions that expired at the end of 2014, it does include provisions that would renew or make permanent a number of these so-called tax extenders. Those of key interest to small businesses include: permanently extending the research and experimentation tax credit; permanently extending the increased section 179 expensing to $1 million; permanently extending the subpart F exception for active financing income and the look-through treatment of payments between related controlled foreign corporations; and modifying and permanently extending the New Markets Tax Credit and the Work Opportunity Tax credit.
Other small-business provisions include allowing businesses with gross receipts of less than $25 million to use an overall cash method of accounting, regardless of whether the business hold inventories. The budget would also reinstate the estate tax at 2009 levels, with a top rate of 45 percent and a $3.5 million exemption. Under the president’s plan, the exclusion amount would not be indexed for inflation, but would be portable between spouses. In order to improve tax gap compliance, the administration calls for requiring businesses to obtain a taxpayer identification number (TIN) from contractors and match that TIN with the Internal Revenue Service (IRS) or withhold a flat-rate percentage of payments (of $600 or more) to the contractor.
Many of these provisions are strongly opposed by the Republicans and are unlikely to gain traction in a Republican-led Congress.
Small Business Administration
The President’s budget provides $701 million overall for SBA with $159 million set aside for the disaster loan program. The flagship 7(a) loan guarantee program, which exceeded its historical program level of $17.5 billion in 2014 for the first time, is highlighted for an increase in authorized lending of up to $21 billion, all from a non-taxpayer-funded, fee supported program.
The SBA budget also calls for funding to support the launch of SBA ONE, the new and improved process for applying for SBA loans which aims to streamline and increase efficiency for bankers and borrowers. The Small Business Development Centers’ line item request was $115 million, the same funding level as 2014.
In addition to funding the implementation of various cybersecurity programs at the Department of Homeland Security and Department of Justice, the FY 2016 budget calls on Congress to pass legislation to facilitate voluntary sharing of cyber threat information between the government and private sector; establish standards for notifying individuals when data breaches occur; and enhance law enforcement tools to go after cyber criminals.
The president’s budget also calls for broad immigration reform similar to the bill that passed the Senate in 2014 which, according to the Congressional Budget Office, could reduce the deficit by about $160 billion in the first decade. The legislation includes language on border security, increased penalties for employers who knowingly hire illegal workers and provides a pathway to earned citizenship.
Please click here for more details from the Office of Management and Budget.