In addition to new tax incentives, the small business provisions that the President has put forward include the creation of a USD30bn small business lending fund to support the smaller banks that extend credit to small firms and a USD20bn small business credit initiative to encourage private sector lending through partnerships.

The Senate bill looks for the elimination of capital gains taxes on certain small business investments. Under the Recovery Act the President signed last year, 75% of these capital gains would be excluded from taxes, but this provision goes one step further and fully excludes capital gains from taxes.

The bill also extends the 'Section 179' business expensing incentive and a Recovery Act bonus depreciation provision that encourages businesses to invest in plants and equipment by accelerating the rate at which they can deduct capital expenditures on new machinery or equipment.

In 2010, business owners may purchase and write off up to USD250,000 of equipment for use in their trade or business. This tax benefit phases out for expenditures between USD250,000 and USD800,000. However, next year, under the current provision, the USD250,000 threshold would decrease sharply to USD25,000, and the USD800,000 ceiling on the benefit would fall to USD200,000. The bill before the Senate would increase the thresholds to USD500,000 and USD2m in 2010 and 2011.

The legislation also expands the types of purchases that would qualify for special expensing to include some types of real property, such as leasehold, retail and restaurant improvements.

As was pointed out by Max Baucus, the Chairman of the Senate Committee on Finance, an increase in those thresholds “effectively decreases the cost of newly-purchased equipment, and makes it more economical for a business to invest. It can help a business grow with relatively simple acquisitions. For example, a business could boost productivity by updating office technology.”

In addition, the bill further extends, to this year, provisions in the Recovery Act and the Hiring Incentives to Restore Employment (HIRE) Act that allow firms to write-off immediately 50% of investments as “bonus depreciation”.

Congress had temporarily provided businesses with the possibility, by this means, to recover the costs of certain capital expenditures more quickly in 2008 and 2009. The present bill would extend the additional depreciation to assets placed in service in 2010.