[Congressional Record Volume 155, Number 97 (Thursday, June 25, 2009)]
[Senate]
[Pages S7091-S7095]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. GRASSLEY:
  S. 1381. A bill to amend the Internal Revenue Code of 1986 to provide 
additional tax relief for small businesses, and for other purposes; to 
the Committee on Finance.
  Mr. GRASSLEY. Mr. President, President Obama, in his press briefing 
this past Tuesday, June 23, 2009, made the following statement 
regarding his assessment of the first four months of the American 
Recovery and Reinvestment Act: ``I am not satisfied with the progress 
that we've made.'' I could not agree more with President Obama's 
assessment. Thus far, the $787 billion American Recovery and 
Reinvestment Act has fallen short on virtually every one of its 
advertised effects.
  In the abbreviated debate leading up to the consideration of this 
bill, we constantly heard the mantra from my friends on the other side: 
JOBS, JOBS, JOBS! This stimulus bill was supposed to create jobs, jobs, 
jobs, but in the four months since the bill's passage, there are still 
no jobs in sight.
  The architects of this bill made several bold claims in projecting 
the job effects of the $787 billion stimulus bill. First, they said 
that its passage would keep the unemployment rate from exceeding 8 
percent. Second, they said it was going to create or save 3 to 4 
million jobs. And third, they said that 90 percent of the new jobs 
created would be in the private sector.
  So far, in all three of these areas, the actual effects of the 
stimulus bill have not lived up to the hype. Let us examine each of 
these areas one by one.
  First, the stimulus bill was supposed to keep unemployment at or 
below 8 percent. In fact, the administration projected that in the 
absence of stimulus, the unemployment rate would peak at around 8.8 
percent. However, four months into this program, the unemployment rate 
stands at 9.4 percent and rising--higher than the administration 
projected it would be in the absence of stimulus.
  Just listen to President Obama's comments from his June 23rd press 
briefing to see which direction the unemployment rate is headed: ``I 
think it's pretty clear now that unemployment will end up going over 10 
percent, if you just look at the pattern, because of the fact that even 
after employers and businesses start investing again and start hiring 
again, typically it takes a while for that employment number to catch 
up with economic recovery. And we're still not at actual recovery yet. 
So I anticipate that this is going to be a difficult, difficult year, a 
difficult period.''
  When asked how high he thought the unemployment rate would go, 
President Obama responded, ``I am not suggesting that I have a crystal 
ball. Since you just threw back at us our last prognosis, let's not 
engage in another one.'' Once again, I have to agree with President 
Obama's assessment.
  As the unemployment rate continues to go up, that means job numbers 
continue to go down, which brings me to my next point: The 
administration projected that the stimulus bill would create--or save--
between 3 and 4 million jobs by the end of 2010. While we've got a long 
way to go before the end of 2010, the prospects of the stimulus bill 
living up to this job creation estimate seem very unlikely. Before we 
look at the actual job numbers for the past few months from the 
Department of Labor, let me discuss the source of the administration's 
projections.
  In January, Christina Romer, who is now Chair of the Council of 
Economic Advisers, and Jared Bernstein, who is now the Chief Economist 
for the Vice President, released a 14-page paper titled ``The Job 
Impact of the American Recovery and Reinvestment Act.''
  In this document, Romer and Bernstein repeatedly asserted that a 
package of the size discussed by the President-Elect would be expected 
to create between three and four million jobs by the end of 2010, which 
would more than meet the President-Elect's goal of creating or saving 3 
million jobs by the end of 2010. In a follow-up report in May, the 
Council of Economic Advisers attempted to explain how the 
administration planned on measuring the number of jobs created or saved 
by the stimulus. This document articulated that all recipients of 
stimulus funds for government investment will be required to provide 
``recipient reports'' estimating the number of jobs retained or created 
directly by the funds.
  Then, to arrive at the total estimate of jobs created or saved by the 
stimulus, the job numbers from the recipient reports will be added to 
the administration's estimate of jobs created or saved through tax 
cuts, State fiscal relief and transfer payments. These estimates will 
be derived from administration-produced multipliers and macro-economic 
modeling.
  Sounds pretty simple, don't you think? Unfortunately, there are some 
problems.

[[Page S7092]]

  The first problem is that the most accurate part of these job 
estimates will be from the recipient reports, and since the stimulus 
bill included approximately $271 billion in government investment 
spending, these reporting requirements cover just over a third of the 
$787 billion of stimulus funding.
  While the job estimates from these recipient reports should be an 
accurate representation of actual jobs created by the stimulus, the 
administration even admits that ``there will likely be inconsistencies 
and measurement error across the individual reports.''
  This leads us to the second problem: for the other \2/3\ of the bill, 
in the administration's own words, ``There is no mechanism available 
for collecting data on actual job creation from these parts of the 
Act.'' So, for \2/3\ of the bill, the job estimates are basically going 
to be guesswork from the administration based on mathematical formulas.
  Since President Obama's ``First 100 Days'' address on April 29, 2009, 
we have heard plenty about the 150,000 jobs that have been created or 
saved so far by the stimulus.
  As I have pointed out, it is impossible to verify these numbers with 
any degree of certainty, and the administration can not even give an 
estimate of how many of the 150,000 jobs were created and how many were 
saved.
  What we can verify are the actual job numbers produced on a monthly 
basis by the Department of Labor. According to the Department of Labor, 
in the 3 full months March, April, and May, following the enactment of 
the stimulus bill, the U.S. economy has lost over 1.5 million jobs. In 
the first 5 months of 2009, the U.S. economy has lost 2.9 million jobs. 
These are the painful numbers that really matter.
  As Jared Bernstein, Chief Economist for the Vice President, said on 
June 8, 2009, ``Most importantly from the perspective of American 
families, the nation's employers are still shedding jobs on net.''
  So, the advertised effect of the stimulus on unemployment was clearly 
wrong, and the job claims resulting from the stimulus are unverifiable. 
Now, how about the claim suggesting that 90 percent of the jobs created 
by the stimulus will be in the private sector?
  To be clear, this claim was first made in Romer and Bernstein's 
January report, and the President himself has repeated this 
assertion. Unfortunately, this projection--like the first two--is 
missing the mark by a long shot.

  Let's look at the actual data from the Department of Labor once 
again. In the first three months since the stimulus bill has been the 
law of the land, the private sector has lost nearly 1.6 million jobs. 
In those same 3 months, government payrolls have actually expanded by 
81,000 jobs. Similarly, in the first 5 months of 2009, while the 
private sector has lost over 3 million jobs, the government has gained 
96,000 jobs.
  While I am encouraged to see at least one sector of the economy 
experiencing job gains, I don't expect that the administration's 
projection of 90 percent of stimulus jobs being in the private sector 
will be realized. The administration has promised that 600,000 
additional public sector jobs will be created or saved this summer. 
While an increase of 600,000 government jobs would certainly be a 
positive development if it comes to pass, it does raise concerns as to 
whether the government will be the only winner from the stimulus bill.
  My point today, Mr. President, is not to berate the administration or 
those who voted for this bill.
  My point is, first, to note the conspicuous absence of job gains in 
our economy following the stimulus, and second, to bring our focus back 
to the source of 70 percent of net new jobs over the past decade--the 
engine that drives the U.S. economy. Of course, I am talking about 
America's small businesses.
  America's small businesses have been suffering during this recession. 
If you go back to your States frequently, like I do, you'll hear about 
it directly. A few months ago, Senators Landrieu and Snowe held a 
hearing on the credit crunch hitting small business. They found that 
big banks have been cracking down on lending to small businesses.
  Another very good source of answers about the environment of small 
business is found in the monthly survey of small business. This survey 
is published by the National Federation of Independent Business 
``NFIB''.
  NFIB is the largest small business organization. NFIB has been 
conducting these surveys for 35 years.
  NFIB's membership includes hundreds of thousands of small businesses 
all across America. You can find the survey on NFIB's website at http:/
/www.nfib.com/Portals/0/PDF/sbet/sbet200906.pdf. I would encourage 
every member to check out the June 2009 survey.
  The survey shows some extremely disturbing trends. On credit 
availability, small businesses are getting squeezed very hard. The 
availability of loans has fallen off a cliff since late 2007 and is at 
its lowest point since the recession period of 1980 to 1982.
  This credit crunch and other factors have contributed to NFIB's index 
of small business optimism falling well below average. According to the 
survey, small business owners have become extremely pessimistic in the 
last couple of years. What you see here is the attitude of the decision 
makers in small business America.
  Those are the decision makers for businesses that President Obama and 
Congress agree are the businesses most likely to grow or contract jobs. 
This data should concern every policy maker in this town.
  While those two sets of data are bad, it doesn't get any better when 
you look at small business hiring plans. Another question on the survey 
asks the small business owner whether he or she plans to expand or 
contract employment over the next three months. The survey results show 
small business activity contracting tremendously, and the overall small 
business employment numbers tell the same story.
  I must say that the President's recent efforts to increase lending to 
the small business sector are commendable. The center piece of his 
small business plan will allow the federal government to spend up to 
$25 billion to purchase the small-business loans that are now hindering 
community banks and lenders. Unfortunately, that is a drop in a very 
empty bucket.
  Remember, colleagues, that small business accounts for about half of 
the private sector.
  Moreover, the positives that will come to small businesses from this 
relatively small package of loans--which will ultimately have to be 
paid back--will be heavily outweighed by the negative impact of the 
President's proposed tax increases. Helping small businesses get loans 
just to take that money back in the form of tax hikes is not wise.
  I now want to turn to those aforementioned tax hikes on small 
businesses that President Obama and my colleagues on the other side of 
the aisle have proposed. I certainly understand that small business is 
vital to the health of our economy. The President and I agree that 70 
percent of new private sector jobs are created by small businesses.
  However, where we differ is that I believe small businesses' taxes 
should be lowered, not raised, to get our economy back on track. In 
2001 and 2003, Congress enacted bipartisan tax relief designed to 
trigger economic growth and create jobs by reducing the tax burden on 
individuals and small businesses. This included an across-the-board 
income tax reduction, which reduced marginal tax rates for income 
earners of all levels, a reduction of the top dividends and capital 
gains tax rate to 15 percent, and a gradual phaseout of the estate tax.
  Unfortunately, like many of the other provisions enacted in 2001 and 
2003, these tax relief measures are scheduled to expire at the end of 
2010.
  Some have referred to this bipartisan tax relief as ``the Bush tax 
cuts for the wealthy'' and have suggested that the tax relief provided 
for higher-income earners should be allowed to expire. However, this 
tax relief was bipartisan and provides tax relief for all taxpayers. 
The President and my colleagues on the other side of the aisle have 
proposed increasing the top two marginal tax rates from 33 percent and 
35 percent to 36 percent and 39.6 percent, respectively.
  They have also proposed increasing the tax rates on capital gains and 
dividends to 20 percent, and providing for an estate tax rate as high 
as 45 percent and an exemption amount of $3.5 million.
  Also, the President has called for fully reinstating the personal 
exemption phaseout, or PEP for short, and

[[Page S7093]]

the limitation on itemized deductions, which is known as Pease. Under 
the 2001 tax law, PEP and Pease are scheduled to be completely phased 
out in 2010. However, like other provisions in the law, PEP and Pease 
are scheduled to come back in full force in 2011 should Congress fail 
to take further action.
  With PEP and Pease fully reinstated, individuals in the top two rates 
could see their marginal effective tax rate increased by 20 percent or 
more. For example, a family of four that is in the 33 percent tax 
bracket in 2010 could pay a marginal effective tax-rate of 41 percent 
after 2010--or even more if they had more children--because of PEP and 
Pease.
  Some of my colleagues on the other side of the aisle have defended 
this proposal by claiming they will only raise taxes on ``wealthy'' 
taxpayers who make over $200,000 a year. For the vast majority of 
people who earn less than $200,000, raising taxes on higher earners 
might not sound so bad.

  However, this means that many small businesses will be hit with a 
higher tax bill. These small businesses happen to at least 70 percent 
of all new private sector jobs in the U.S.
  These small businesses that are taxed as sole proprietorships, S 
corporations, and partnerships--including LLCs--whose owners make over 
$200,000, or $250,000 if married, would get hit with the President's 
proposal to raise the top two marginal tax rates.
  In addition, there are just under 2 million C corporations that are 
not publicly traded, and all C corporations are subject to double 
taxation. To the extent these C corporations' owners that make over 
$200,000, or $250,000 if married, pay themselves a salary, they would 
get hit with the tax increase on the top two marginal tax rates 
proposed by the President.
  Also, any owners of C corporations that receive dividends or realize 
capital gains and make over $200,000, or $250,000 if married, would pay 
a 20 percent rate on these dividends and capital gains after 2010 under 
the President's tax hike proposals, instead of paying the current law 
rate of 15 percent.
  According to NFIB survey data, 50 percent of owners of small 
businesses that employ 20-249 workers would fall in the top two 
brackets. According to the Small Business Administration, about \2/3\ 
of the Nation's small business workers are employed by small businesses 
with 20-500 employees.
  Do we really want to raise taxes on these small businesses that 
create new jobs and employ \2/3\ of all small business workers?
  With these small businesses already suffering from the credit crunch, 
do we really think it's wise to hit them with the double-whammy of a 20 
percent increase in their marginal tax rates?
  Newly developed data from the Joint Committee on Taxation 
demonstrates that 55 percent of the tax from the higher rates will be 
borne by small business owners with income over $250,000. This is a 
conservative number, because it doesn't include flow-through business 
owners making between $200,000 and $250,000 that will also be hit with 
the Budget's proposed tax hikes.
  If the proponents of the marginal rate increase on small business 
owners agree that a 20 percent tax increase for half of the small 
businesses that employ two-thirds of all small business workers is not 
wise, then they should either oppose these tax increases, or present 
data that show a different result.
  I will also fight for a lower estate tax rate and a higher estate tax 
exemption amount to protect successful small businesses and farmers. In 
a time when many businesses are struggling to stay afloat, it does not 
make sense to impose additional burdens on them by raising their taxes.
  Odds are, they will cut spending. They will cancel orders for new 
equipment, cut health insurance for their employees, stop hiring, and 
lay people off. Instead of seeking to raise taxes on those who create 
jobs in our economy, policies need to focus on reducing excessive tax 
and regulatory barriers that stand in the way of small businesses and 
the private sector making investments, expanding production, and 
creating sustainable jobs.
  As the current ranking member of the tax writing Finance Committee, 
you can be sure that I will continue to fight to prevent a dramatic tax 
increase on our nation's job engine--the small businesses of America. 
This includes working to protect small businesses from higher marginal 
tax rates, an increase in the capital gains and dividends tax rate, and 
an increase in the unfair estate tax rate that will penalize the 
success of small businesses and farmers who would like to pass on their 
gains to the next generation.
  In fact, today I have introduced a bill to lower taxes on these job-
creating small businesses.
  My bill contains a number of provisions that will leave more money in 
the hands of these small businesses so that these businesses can hire 
more workers, continue to pay the salaries of their current employees, 
and make additional investments in these businesses.
  For instance, my bill would increase the amount of capital 
expenditures that small businesses can expense from $250,000 to 
$500,000. Also, my bill would allow more small C corporations to 
benefit from the lower graduated tax rates for smaller C corporations.
  Another provision takes the general business credits, which are 
listed in section 38, out of the Alternative Minimum Tax, AMT, for 
those sole proprietorships, flow-throughs and non-publicly traded C-
corps with 50 million or less in annual gross receipts. This provision 
amends section 39 to extend the 1-year carryback for general business 
credits to a 5-year carryback. This applies to general business credits 
for those sole proprietorships, flow-through entities and non-publicly 
traded C-corps with 50 million or less in annual gross receipts.
  Another provision in my bill amends section 199 of the Internal 
Revenue Code, which contains the deduction for manufacturing, to 
provide a 20 percent deduction for flow-through business income for all 
small businesses, which are defined as flow-through entities with 50 
million or less in annual gross receipts. Another provision in my bill 
deals with the situation where a C corporation becomes an S 
corporation. Under current law, there is no tax on built-in gains of 
assets within a C corporation that converts to an S corporation if 
those assets with built-in gain are held for 10 years by the S 
corporation. The stimulus bill reduced this 10-year period down to 7 
years for sales of assets with built-in gain that occur within 2009 and 
2010.
  My provision reduces this time period down to 5 years for all S 
corporations that have converted from a C corporation.
  Another provision in my bill expands the net operating loss provision 
contained in the stimulus bill. Current law provides that net operating 
losses from any size business may be carried back 2 taxable years 
before the year that the loss arises and carried forward 20 years. The 
stimulus bill amended the carryback provision by expanding the 
carryback from 2 years to 5 years if a small business had gross 
receipts of $15 million or less.
  This provision expands that $15 million gross receipt requirement to 
$50 million in gross receipts so that more small businesses can qualify 
for this benefit.
  Another provision in my bill amends section 1202 of the Internal 
Revenue Code to eliminate the tax on capital gains for certain start-up 
C corporations. The stimulus bill reduced the capital gains tax to 
approximately 7 percent on stock qualifying under 1202. However, 
President Obama has called for eliminating, not simply reducing, the 
tax on capital gains for these start-up businesses, and that is exactly 
what my provision would do.
  The final provision in my bill permits a deduction for payments made 
under the Self-Employment Contribution Act, or SECA, at one-hundred 
percent of health insurance premiums that are paid by those who are 
self-employed.
  We all want to see the job numbers from the Department of Labor 
moving in a positive direction. We all want to see the unemployment 
rate plummet. I firmly believe that the best way for us to do that is 
to prime the job-creating engine of our economy, which is small 
businesses. Furthermore, increasing taxes on small businesses as 
President Obama has proposed will destroy even more jobs.
  My small business bill, if enacted, will lead to many new jobs. As 
opposed

[[Page S7094]]

to the jobs President Obama argues that the stimulus bill has saved 
while our economy has been hemorrhaging jobs, my bill will create 
countable, verifiable, private sector jobs that will put people to work 
and get the economy moving in the right direction again.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                S. 1381

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF 
                   CONTENTS.

       (a) Short Title.--This Act may be cited as the ``Small 
     Business Tax Relief Act of 2009''.
       (b) Reference.--Except as otherwise expressly provided, 
     whenever in this Act an amendment or repeal is expressed in 
     terms of an amendment to, or repeal of, a section or other 
     provision, the reference shall be considered to be made to a 
     section or other provision of the Internal Revenue Code of 
     1986.
       (c) Table of Contents.--The table of contents for this Act 
     is as follows:

     SEC. 2. PERMANENT INCREASE IN LIMITATIONS ON EXPENSING OF 
                   CERTAIN DEPRECIABLE BUSINESS ASSETS.

       (a) In General.--Subsection (b) of section 179 (relating to 
     limitations) is amended--
       (1) by striking ``$25,000'' and all that follows in 
     paragraph (1) and inserting ``$500,000.'',
       (2) by striking``$200,000'' and all that follows in 
     paragraph (2) and inserting ``$2,000,000'',
       (3) by striking ``after 2007 and before 2011, the $120,000 
     and $500,000'' in paragraph (5)(A) and inserting ``after 
     2009, the $500,000 and the $2,000,000'',
       (4) by striking ``2006'' in paragraph (5)(A)(ii) and 
     inserting ``2008'', and
       (5) by striking paragraph (7).
       (b) Permanent Expensing of Computer Software.--Section 
     179(d)(1)(A)(ii) of the Internal Revenue Code of 1986 
     (defining section 179 property) is amended by striking ``and 
     before 2011''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2008.

     SEC. 3. MODIFICATION OF CORPORATE INCOME TAX RATES.

       (a) In General.--Paragraph (1) of section 11(b) (relating 
     to amount of tax) is amended to read as follows:
       ``(1) In general.--The amount of the tax imposed by 
     subsection (a) shall be the sum of--
       ``(A) 15 percent of so much of the taxable income as does 
     not exceed $1,000,000,
       ``(B) 25 percent of so much of the taxable income as 
     exceeds $1,000,000 but does not exceed $1,500,000,
       ``(C) 34 percent of so much of the taxable income as 
     exceeds $1,500,000 but does not exceed $10,000,000, and
       ``(D) 35 percent of so much of the taxable income as 
     exceeds $10,000,000.

     In the case of a corporation which has taxable income in 
     excess of $2,000,000 for any taxable year, the amount of tax 
     determined under the preceding sentence for such taxable year 
     shall be increased by the lesser of (i) 5 percent of such 
     excess, or (ii) $235,000. In the case of a corporation which 
     has taxable income in excess of $15,000,000, the amount of 
     the tax determined under the foregoing provisions of this 
     paragraph shall be increased by an additional amount equal to 
     the lesser of (i) 3 percent of such excess, or (ii) 
     $100,000.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2009.

     SEC. 4. GENERAL BUSINESS CREDITS OF ELIGIBLE SMALL BUSINESSES 
                   NOT SUBJECT TO ALTERNATIVE MINIMUM TAX.

       (a) In General.--Section 38(c) (relating to limitation 
     based on amount of tax) is amended by redesignating paragraph 
     (5) as paragraph (6) and by inserting after paragraph (4) the 
     following new paragraph:
       ``(5) Special rules for eligible small business credits.--
       ``(A) In general.--In the case of eligible small business 
     credits--
       ``(i) this section and section 39 shall be applied 
     separately with respect to such credits, and
       ``(ii) in applying paragraph (1) to such credits--

       ``(I) the tentative minimum tax shall be treated as being 
     zero, and
       ``(II) the limitation under paragraph (1) (as modified by 
     subclause (I)) shall be reduced by the credit allowed under 
     subsection (a) for the taxable year (other than the eligible 
     small business credits).

       ``(B) Eligible small business credits.--For purposes of 
     this subsection, the term `eligible small business credits' 
     means the sum of the credits listed in subsection (b) which 
     are determined for the taxable year with respect to an 
     eligible small business. Such credits shall not be taken into 
     account under paragraph (2), (3), or (4).
       ``(C) Eligible small business.--For purposes of this 
     subsection, the term `eligible small business' means, with 
     respect to any taxable year_
       ``(i) a corporation the stock of which is not publicly 
     traded, or
       ``(ii) a partnership,

     which meets the gross receipts test of section 448(c) (by 
     substituting `$50,000,000' for `$5,000,000' each place it 
     appears) for the taxable year (or, in the case of a sole 
     proprietorship, which would meet the test if such 
     proprietorship were a corporation).''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to credits determined in taxable years beginning 
     after December 31, 2009, and to carrybacks of such credits.

     SEC. 5. GENERAL BUSINESS CREDITS OF ELIGIBLE SMALL BUSINESSES 
                   CARRIED BACK 5 YEARS.

       (a) In General.--Section 39(a) (relating to carryback and 
     carryforward of unused credits) is amended by adding at the 
     end the following new paragraph:
       ``(4) 5-year carryback for eligible small business 
     credits.--
       ``(A) In general.--Notwithstanding subsection (d), in the 
     case of eligible small business credits--
       ``(i) this section shall be applied separately from the 
     business credit (other than the eligible small business 
     credits) or the marginal oil and gas well production credit,
       ``(ii) paragraph (1) shall be applied by substituting `each 
     of the 5 taxable years' for `the taxable year' in 
     subparagraph (A) thereof, and
       ``(iii) paragraph (2) shall be applied--

       ``(I) by substituting `25 taxable years' for `21 taxable 
     years' in subparagraph (A) thereof, and
       ``(II) by substituting `24 taxable years' for `20 taxable 
     years' in subparagraph (B) thereof.

       ``(B) Eligible small business credits.--For purposes of 
     this subsection, the term `eligible small business credits' 
     has the meaning given such term by section 38(c)(5)(B).''.
       (b) Conforming Amendment.--Section 39(a)(3)(A) is amended 
     by inserting ``or the eligible small business credits'' after 
     ``credit)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to credits arising in taxable years beginning 
     after December 31, 2009.

     SEC. 6. DEDUCTION FOR ELIGIBLE SMALL BUSINESS INCOME.

       (a) In General.--Paragraph (1) of section 199(a) is amended 
     to read as follows:
       ``(1) In general.--There shall be allowed as a deduction an 
     amount equal to the sum of--
       ``(A) 9 percent of the lesser of--
       ``(i) the qualified production activities income of the 
     taxpayer for the taxable year, or
       ``(ii) taxable income (determined without regard to this 
     section) for the taxable year, and
       ``(B) in the case of an eligible small business for any 
     taxable year beginning after 2009, 20 percent of the lesser 
     of--
       ``(i) the eligible small business income of the taxpayer 
     for the taxable year, or
       ``(ii) taxable income (determined without regard to this 
     section) for the taxable year.''.
       (b) Eligible Small Business; Eligible Small Business 
     Income.--Section 199 is amended by adding at the end the 
     following new subsection:
       ``(e) Eligible Small Business; Eligible Small Business 
     Income.--
       ``(1) Eligible small business.--For purposes of this 
     section, the term `eligible small business' has the meaning 
     given such term by section 38(c)(5)(C).
       ``(2) Eligible small business income.--
       ``(A) In general.--For purposes of this section, the term 
     `eligible small business income' means the excess of--
       ``(i) the income of the eligible small business which--

       ``(I) is attributable to the actual conduct of a trade or 
     business,
       ``(II) is income from sources within the United States 
     (within the meaning of section 861), and
       ``(III) is not passive income (as defined in section 
     904(d)(2)(B)), over

       ``(ii) the sum of--

       ``(I) the cost of goods sold that are allocable to such 
     income, and
       ``(II) other expenses, losses, or deductions (other than 
     the deduction allowed under this section), which are properly 
     allocable to such income.

       ``(B) Exceptions.--The following shall not be treated as 
     income of an eligible small business for purposes of 
     subparagraph (A):
       ``(i) Any income which is attributable to any property 
     described in section 1400N(p)(3).
       ``(ii) Any income which is attributable to the ownership or 
     management of any professional sports team.
       ``(iii) Any income which is attributable to a trade or 
     business described in subparagraph (B) of section 1202(e)(3).
       ``(iv) Any income which is attributable to any property 
     with respect to which records are required to be maintained 
     under section 2257 of title 18, United States Code.
       ``(C) Allocation rules, etc.--Rules similar to the rules of 
     paragraphs (2), (3), (4)(D), and (7) of subsection (c) shall 
     apply for purposes of this paragraph.
       ``(3) Special rules.--Except as otherwise provided by the 
     Secretary, rules similar to the rules of subsection (d) shall 
     apply for purposes of this subsection.''.
       (c) Conforming Amendment.--Section 199(a)(2) is amended by 
     striking ``paragraph (1)'' and inserting ``paragraph 
     (1)(A)''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2009.

[[Page S7095]]

     SEC. 7. REDUCTION IN RECOGNITION PERIOD FOR BUILT-IN GAINS 
                   TAX.

       (a) In General.--Paragraph (7) of section 1374(d) (relating 
     to definitions and special rules) is amended to read as 
     follows:
       ``(7) Recognition period.--
       ``(A) In general.--The term `recognition period' means the 
     5-year period beginning with the 1st day of the 1st taxable 
     year for which the corporation was an S corporation.
       ``(B) Special rule for distributions to shareholders.--For 
     purposes of applying this section to any amount includible in 
     income by reason of distributions to shareholders pursuant to 
     section 593(e), subparagraph (A) shall be applied without 
     regard to the phrase `10-year'.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2010.

     SEC. 8. CARRYBACK OF NET OPERATING LOSSES OF CERTAIN SMALL 
                   BUSINESSES ALLOWED FOR 5 YEARS.

       Subparagraph (H) of section 172(b)(1) is amended to read as 
     follows:
       ``(H) 5-year carryback of losses of certain small 
     businesses.--
       ``(i) In general.--In the case of a net operating loss with 
     respect to any eligible small business for any taxable year 
     ending after 2008, or, if applicable, following the taxable 
     year with respect to which an election was made by such 
     eligible small business under this subparagraph (as in effect 
     before the date of the enactment of the Small Business Tax 
     Relief Act of 2009)--

       ``(I) subparagraph (A)(i) shall be applied by substituting 
     `5' for `2',
       ``(II) subparagraph (E)(ii) shall be applied by 
     substituting `4' for `2', and
       ``(III) subparagraph (F) shall not apply.

       ``(ii) Eligible small business.--For purposes of clause 
     (i), the term `eligible small business' has the meaning given 
     such term by section 38(c)(5)(C).''.

     SEC. 9. MODIFICATIONS TO EXCLUSION FOR GAIN FROM CERTAIN 
                   SMALL BUSINESS STOCK.

       (a) Temporary Increase in Exclusion.--Paragraph (3) of 
     section 1202(a) (relating to exclusion) is amended to read as 
     follows:
       ``(3) Special rules for stock acquired before 2011.--In the 
     case of qualified small business stock--
       ``(A) acquired after the date of the American Recovery and 
     Reinvestment Tax Act of 2009 and on or before the date of the 
     enactment of the Small Business Tax Relief Act of 2009--
       ``(i) paragraph (1) shall be applied by substituting `75 
     percent' for `50 percent', and
       ``(ii) paragraph (2) shall not apply, and
       ``(B) acquired after the date of the enactment of the Small 
     Business Tax Relief Act of 2009 and before January 1, 2011--
       ``(i) paragraph (1) shall be applied by substituting `100 
     percent' for `50 percent',
       ``(ii) paragraph (2) shall not apply, and
       ``(iii) section 57(a)(7) shall not apply.''.
       (b) Increase in Limitation.--
       (1) In general.--Subparagraph (A) of section 1202(b)(1) 
     (relating to per-issuer limitation on taxpayer's eligible 
     gain) is amended by striking ``$10,000,000'' and inserting 
     ``$15,000,000''.
       (2) Married individuals.--Subparagraph (A) of section 
     1202(b)(3) (relating to treatment of married individuals) is 
     amended by striking ``paragraph (1)(A) shall be applied by 
     substituting `$5,000,000' for `$10,000,000' '' and inserting 
     ``the amount under paragraph (1)(A) shall be half of the 
     amount otherwise in effect''.
       (c) Modification of Definition of Qualified Small 
     Business.--Section 1202(d)(1) (defining qualified small 
     business) is amended by striking ``$50,000,000'' each place 
     it appears and inserting ``$75,000,000''.
       (d) Inflation Adjustments.--Section 1202 (relating to 
     partial exclusion for gain from certain small business stock) 
     is amended by redesignating subsection (k) as subsection (l) 
     and by inserting after subsection (j) the following new 
     subsection:
       ``(k) Inflation Adjustment.--
       ``(1) In general.--In the case of any taxable year 
     beginning after 2009, the $15,000,000 amount in subsection 
     (b)(1)(A), the $75,000,000 amount in subsection (d)(1)(A), 
     and the $75,000,000 amount in subsection (d)(1)(B) shall each 
     be increased by an amount equal to--
       ``(A) such dollar amount, multiplied by
       ``(B) the cost of living adjustment determined under 
     section 1(f)(3) for the calendar year in which the taxable 
     year begins, determined by substituting `calendar year 2008' 
     for `calendar year 1992' in subparagraph (B) thereof.
       ``(2) Rounding.--If any amount as adjusted under paragraph 
     (1) is not a multiple of $1,000,000 such amount shall be 
     rounded to the next lowest multiple of $1,000,000.''.
       (e) Effective Dates.--
       (1) Exclusion; qualified small business.--The amendments 
     made by subsections (a) and (c) shall apply to stock acquired 
     after the date of the enactment of this Act.
       (2) Limitation; inflation adjustment.--The amendments made 
     by subsections (b) and (d) shall apply to taxable years 
     ending after the date of the enactment of this Act.

     SEC. 10. DEDUCTION FOR HEALTH INSURANCE COSTS IN COMPUTING 
                   SELF-EMPLOYMENT TAXES.

       (a) In General.--Section 162(l) (relating to special rules 
     for health insurance costs of self-employed individuals) is 
     amended by striking paragraph (4) and by redesignating 
     paragraph (5) as paragraph (4).
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.
                                 ______