As 2012 progresses, the political heat in Washington is climbing faster than summertime temperatures, and small business is becoming increasingly central to policy debates in Congress. Entrepreneurs make up a core constituency in the U.S. With National Small Business Week winding down, now is a better time than ever for legislators to reflect on these individuals' needs and work to address them -- one of which is tax relief. Luckily, Congress will have a chance to do just that when the Small Business Jobs and Tax Relief Act of 2012 comes up for a vote after Memorial Day.
Before we get into the policy nitty-gritty, let's talk about small business's impact on our economy. In early May, Automatic Data Processing, Inc. (ADP) released data revealing our nation's smallest businesses -- those with 1-49 employees -- continue to outperform large businesses in the job creation arena. They generated roughly half of all new jobs in April, while large businesses created just over 3 percent.
Figures like these reinforce the fact that small businesses are indeed the backbone of our economy. If we want to sustain that, or better yet improve it, it's time for lawmakers to put partisanship aside and work together on policies that meet entrepreneurs' needs. And in fact, legislation recently introduced in the Senate would be particularly conducive to small business job creation. Authored by Senate Majority Leader Harry Reid, the Jobs and Tax Relief Act would help small firms save money in two ways.
For one, it would give them a 10 percent income tax credit on increased payroll in 2012. This is meant to encourage small business owners to hire or boost employee wages right now, and to reward them for doing so. The nonpartisan Congressional Budget Office has said that compared to other proposals for incentivizing small business job creation, proposals like this one would have the greatest value per dollar of output.
Another way the bill would boost small firms' bottom lines is by extending the 100 percent deduction for equipment purchases. That would lower entrepreneurs' after-tax costs, prompting them to make new investments that can accelerate our overall economic recovery. This deduction is widely known to enjoy bipartisan support, which makes sense, considering it reduces the average cost of capital across all investments by more than 75 percent for small business owners, according to estimates from the Treasury's Office of Tax Policy.
As we move beyond the recession, it becomes increasingly apparent that our smallest companies are the ones putting America back to work. That's why we've been celebrating them this week. From our online seminars that inform entrepreneurs about how to navigate loan resources, healthcare reform and energy upgrades to our national small business photo contest, it's been a busy week for us.
We're doing everything we can -- this week and every week -- to help make sure entrepreneurs have what they need to grow the economy. We hope legislators will make it a priority to do the same. By passing the Small Business Jobs and Tax Relief Act, lawmakers can give entrepreneurs some well-deserved relief. It would not only better financial conditions for them, but for the economy overall--and that means for each and every one of us.
John Arensmeyer is the founder & CEO of Small Business Majority