[Congressional Record Volume 142, Number 13 (Wednesday, January 31, 1996)]
[Extensions of Remarks]
[Page E117]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                SMALL BUSINESS INVESTMENT AND GROWTH ACT

                                 ______


                          HON. PHILIP M. CRANE

                              of illinois

                    in the house of representatives

                      Wednesday, January 31, 1996

  Mr. CRANE. Mr. Speaker, today I am introducing legislation, the Small 
Business Investment and Growth Act, to provide needed tax relief for 
some of America's small business manufacturers.
  As a member of the Ways and Means Committee, I strenuously objected 
to the tax increases of 1990 and 1993, knowing of the negative economic 
impact these would have on American businesses and individuals. In 
particular, increasing the maximum individual marginal tax rate from 28 
percent to 39.6 percent put a tremendous strain on small businesses 
organized as S corporations, because they must pay taxes at the 
individual rate. S corporation manufacturers, facing 36-percent and 
39.6-percent tax rates at the highest levels, compete at a significant 
disadvantage against C corporation manufacturers, which pay a maximum 
34-percent rate.
  I propose to end this Government-created inequity with the Small 
Business Investment and Growth Act. Small businesses have created the 
overwhelming majority of jobs in the United States. We cannot allow the 
intrusiveness of the Federal Government to neutralize this proven 
formula of prosperity and job growth.
  This act will establish at 34 percent the maximum tax rate for 
manufacturers organized as S corporations. The taxable small business 
income would be limited to income from the trade or business of certain 
eligible small businesses, specifically excluding passive income. To 
benefit from the maximum 34-percent rate, businesses must also reinvest 
their after-tax income into the business.
  To encourage business reinvestment, each eligible S corporation would 
establish a new qualified retained earnings account [QREA]. Each year, 
the QREA will be increased by the taxable earnings of the business. The 
QREA may then be decreased by either ``qualified'' or ``nonqualified'' 
distributions. Qualified distributions are to enable shareholders to 
pay the income taxes due on their pro rata share of the taxable income. 
Should a business choose to make nonqualified distributions from its 
QREA, it will incur an additional tax, designed to negate the benefit 
of the maximum rate of 34 percent.
  Again, the intent of this legislation is to reward eligible S 
corporations which reinvest income into the business, thereby creating 
more jobs. Indeed, successful small manufacturers have been able to 
create three to four new jobs for every additional $100,000 they retain 
in the business.
  I recognize that this legislation is a rather modest and narrowly 
crafted bill, and I realize that there may be other ways to accomplish 
the end goal of this proposal, which is to equalize the tax treatment 
of all manufacturers whether they organize as S corporations or C 
corporations. In that regard, I would welcome a debate on the best 
means to achieve this end. Personally, I would prefer to lower even 
further corporate and business taxes, but we are currently constrained 
by our budget rules. Furthermore, I look forward to an opportunity to 
completely abolish the present tax code in order to replace it with a 
more simple tax code that eliminates the inequities inherent in the 
current code.
  The Small Business Investment and Growth Act will, in the near term, 
provide much needed tax relief to spur economic and job growth, and I 
would strongly encourage my colleagues to cosponsor it.

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