[Congressional Record Volume 149, Number 57 (Wednesday, April 9, 2003)]
[Senate]
[Pages S5075-S5076]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. KERRY:
  S. 842. A bill to amend the Internal Revenue Code of 1986 to provide 
tax relief for small businesses, and for other purposes; to the 
Committee on Finance.
  Mr. KERRY. Mr. President, today I am introducing a package of 
targeted, affordable tax relief provisions designed to help the 
Nation's small businesses during this time of economic stagnation. 
After the Easter recess, I know that the Finance Committee will be 
marking up a wide-ranging tax bill whose ultimate size is yet to be 
determined. I also know, however, that few of the proposals offered by 
the President will truly stimulate the economy or help the millions of 
struggling small businesses. Instead, the Bush tax proposal will reward 
the richest among us and pass the bill to our children. We can and must 
do better.
  As the Ranking Member of the Senate Committee on Small Business and 
Entrepreneurship, I have drafted legislation that will truly help small 
businesses and the Nation. It is a tax proposal with meaningful, 
affordable reforms that will make a difference without sticking our 
kids with a huge bill. I hope that all of part of this legislation can 
be incorporated into a Senate economic stimulus package. I have titled 
the bill that I am introducing today ``The Affordable Small Business 
Stimulus and Simplification Act of 2003,'' and it builds upon a bill 
that I introduced in the 107th Congress.
  I call my bill an ``affordable'' stimulus package for small business 
because it targets the policies that can make the biggest difference 
and uses our limited resources as wisely and efficiently as possible. 
It does not include everything that I would like to do for small 
business, but it includes enough to help stimulate this essential 
component of our economy. Moreover, the bill will help address the tax 
complexity concerns of small businesses because it includes the Single 
Point Tax Filing Act that has passed the Senate on two previous 
occasions and a new standard deduction that will benefit millions of 
small businesses.

[[Page S5076]]

  Let me briefly explain the contents of my bill.
  First, my bill increases the expensing limitation for small 
businesses. It raises it to $35,000, rising to $40,000 in 2008, and it 
increases the phase-out level, above which expensing is not allowed, to 
$350,000, rising to $400,000 in 2008. I know that others have proposed 
raising this limit as high as $75,000, but such an increase is simply 
unaffordable while we face huge budget deficits. Raising it to $35,000 
now, rising to $40,000 in 2008, is a more responsible approach and will 
provide an immediate investment incentive to many small businesses.
  Second, my bill creates a new standard deduction of $500 for sole 
proprietorships. This provision provides tax relief and real tax 
simplification to the smallest of small businesses because it would 
relieve these businesses of the paperwork burden of having to itemize 
the myriad of small expenses on IRS forms. Of course, businesses with 
expenses greater than $500 would retain the option of full itemization. 
But for the very smallest businesses, many of them home-based or part-
time, this new provision will be a significant step towards tax 
simplification.
  Third, the bill modifies and expands a provision that was signed into 
law in 1993 regarding new equity investments in small businesses' 
stock. Under my bill, new investments in companies with capitalization 
of up to $100 million at the time of investment will have a 75 percent 
capital gains exclusion if the investments are held at least four 
years. The exclusion for such investments will be 100 percent if they 
are made in a business involved in such critical technologies as 
transportation or homeland security, defense-related technologies, 
anti-terrorism, pollution control, energy efficiency, or waste 
management. The 100-percent exclusion would also be allowed for 
investments in specialized small business investment companies, or 
SSBICs, whose investments are made solely in disadvantaged small 
businesses. Both the 75 and 100 percent exclusion levels would be 
available for investments made by both individuals and corporations. In 
addition, the rollover period for such investments would be increased 
from 60 days to 180 days. The provision passed in 1993 was crafted too 
narrowly to stimulate substantial new investment. I hope that this new, 
expanded capital gains treatment will prompt new investments in small 
and entrepreneurial businesses.
  Fourth, my bill recognizes that the current depreciation schedules 
for high-tech equipment and software are out of date, given how quickly 
such items become obsolete in our fast-changing economy. My bill would 
reduce the recovery period for computers or peripheral equipment from 
five years to three, and for software from three years to two. This 
change would be permanent.
  Fifth, my bill would fix a problem with the tax deductibility of 
health insurance expenses for the self-employed. Under current law, 
these expenses are fully deductible in 2003 for the first time--but the 
Internal Revenue Code denies the deduction to taxpayers who are 
eligible to participate in another plan, such as their spouse's 
employer's plan. My bill would clarify that the deduction is denied 
only if the taxpayer actually participates in the other plan.
  Sixth, to simplify tax filing, my bill would include the Single Point 
Tax Filing Act. This section would simplify the tax filing process for 
employers that choose to participate by allowing the Internal Revenue 
Service and State agencies to combine, on one form, both State and 
Federal employment tax returns. This provision has been passed by the 
Senate twice before, but has not yet become law. There is currently a 
demonstration project along these lines in Montana, which is working 
very well. I believe such authority should extend to all States.
  Seventh, my bill clarifies that married couples who co-own a business 
can elect to be sole proprietors for purposes of filing their Federal 
income taxes. This provision aligns the law with the way many married 
couples actually do business. Under present law, married couples who 
co-own a business technically own that business as a partnership for 
Federal income tax purposes. This treatment carries with it all the 
complications of the partnership provisions of the Internal Revenue 
Code, including having to file partnership returns. But in reality, 
many married couples in this situation consider themselves sole 
proprietors and are incorrectly filing tax returns as such. While the 
IRS may not be strictly enforcing the law against these taxpayers, this 
technical non-compliance can cause trouble down the road. Upon divorce, 
for example, it may not be clear that the business had been jointly 
owned. This same ambiguity might complicate a spouse's ability to get 
the full Social Security and Medicare benefits to which they are 
entitled. My bill makes clear that for Federal income tax purposes, 
married couples who co-own a business can be treated as sole 
proprietors.
  Eighth, my bill would extend the existing income averaging provisions 
to cover fishing as well as farming. In other words, the choice to 
average income from a farming trade or business under present law would 
be extended to cover income from the trade or business of fishing as 
well. Under my bill, a farmer or fisherman electing to average his or 
her income would owe the alternative minimum tax, AMT, only to the 
extent he or she would have owed AMT had averaging not been elected. 
This is an important change that will benefit not only people in my 
state, but also throughout New England, the Pacific Northwest, the Gulf 
of Mexico region, Alaska, and in other areas of the country where 
fishing is an important industry.
  Finally, my bill would modify the tax treatment of investments in 
debenture small business investment companies, or SBICs, so they are 
less likely to create unrelated business taxable income, UBTI, 
liability. The current tax treatment of money borrowed from the 
government by a debenture SBIC creates taxable income for an otherwise 
tax-exempt investor, which makes it almost impossible to raise capital 
from these investors. Free to choose, tax-exempt investors opt to 
invest in venture capital funds that do not create any UBTI liability. 
Therefore, my bill would assure that money borrowed from the government 
by an SBIC does not subject tax-exempt investors to UBTI. In so doing, 
the bill would encourage greater investment in SBICs, which provide 
critically needed venture capital to emerging small businesses. These 
venture capital funds are sorely needed in today's stalled economy.
  I believe that ``The Affordable Small Business Stimulus and Stimulus 
Act of 2003'' will provide a much-needed stimulus to small business in 
a way that we can afford, particularly if we can find offsets to pay 
for the bill. I look forward to working with the Chairman and Ranking 
Member of the Finance Committee to have some or all of its provisions 
enacted into law.
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