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Proposed House bill would spur small business formation

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House lawmakers could begin debate as early as Thursday on a bill that would eliminate capital-gains taxes on many small business investments and create a $30-billion small business loan fund.

The Wall Street Journal reports that the bill builds off of several proposals earlier this year by President Barack Obama designed to help encourage small business growth and encourage entrepreneurs to create a corporation.

The recovery act allows small business investors to avoid capital gains taxes on 75 percent of their profits if they buy the stock before the end of 2010 and retain it for five years. The new proposal would allow those investors to exclude all of their gains from taxes, and it extends the purchasing deadline an additional year.

The bill would also relax penalties for small business owners who don’t disclose certain restricted employee-benefit plans that have been classified as tax shelters by the Internal Revenue Service.

Officials say the proposed bill would cost approximately $7 billion but would not add to the growing federal deficit. The cost of the proposal would be offset by enforcing new annuity trust laws and limiting the use of a biofuel tax credit for fuels that are not highly corrosive and could be used in traditional engines.