Treasury Unveils Corporate Tax Reform Proposal

February 28, 2012

On Feb. 22, Treasury Secretary Timothy Geithner unveiled a proposal to reform the U.S. corporate tax structure. The proposal includes: lowering the corporate rate to 28 percent from 35 percent; eliminating myriad business tax breaks and credits; permanence of the R&E (also commonly referred to as the R&D tax credit) tax credits; doubling the deduction for start-up costs; and permanent, increased Section 179 expensing level of $1 million. Unfortunately, the proposal fails to ensure parity between small and large business, and small businesses soon could be facing tax rates of up to 40 percent or more.

“Although the proposal does include some positive language for small-business tax credits, NSBA believes firmly that the only way to ensure fairness, transparency and eased complexity of the U.S. tax code is broad reform,” stated NSBA President Todd McCracken. “And that must also include individual income taxes.”

In addition to punting on the tax rates paid by the 83 percent of small businesses that pay taxes on the owner(s) personal income tax level, this proposal would make two other potentially harmful changes: eliminating “last in first out” accounting and changing depreciation schedules which would scale back capital cost recovery. Other proposed changes could have a substantial negative effect on small business, however the proposal is unclear.


On a positive note, the proposal does include provisions that would help small business: expand and make permanent the R&E tax credit; increase and make permanent Section 179 expensing to $1 million; double the deduction for start-up costs from $5,000 to $10,000; and allow cash accounting on businesses with up to $10 million in gross receipts.


The proposal also mentions expanding the health insurance tax credit. However it doesn’t offer any details on how it would ease the phase-out—meaning it will remain a temporary credit—or on what steps it would take to ease its complexity.


“This plan appears to be driven by the bi-partisan consensus that a greatly simplified tax system can unleash greater economic growth,” stated NSBA Chair Chris Holman, CEO of Michigan Business and President of The Greater Lansing Business Monthly. “Unfortunately, without broad tax reform, such as the Fair Tax, this proposal falls short of that.”

While the proposal highlights a number of issues and even provides detail on certain pieces, there remains a great lack of details on many sections critical to small business.

NSBA will continue to analyze the proposal and provide updates.