The U.S. House of Representatives voted to extend important small business tax cuts for two more years and retain lower tax rates on capital gains and dividends through 2009 and 2010. The extensions are contained in the $56 billion, five-year package of tax cuts called the Tax Relief Extension Reconciliation Act of 2005. It passed Thursday by a narrow vote of 234-197.

“The House’s vote to extend tax relief is a victory for Main Street job creators,” said Dan Danner, executive vice president of The National Federation of Independent Business, the nation’s largest small-business advocacy group. “With two-thirds of all new jobs being created by small business, maintaining the current levels for expensing and faster depreciation schedules will help keep the nation’s economy strong.”

H.R. 4297 includes two-year extensions for Section 179 expensing, accelerated depreciation for leasehold properties, and other tax reductions contained in the Jobs and Growth Act of 2003. These were actively supported by small business groups, including Jewelers of America.

If the fifteen-year depreciation period for leasehold improvements hadn’t been extended, the depreciation schedule would have reverted to 39 years in 2006.

The 2003 law had increased $25,000 to $100,000 the amount of new investment a business can expense in a given year. It also increased from $200,000 to $400,000 the amount of total investment a business can make in a year and still qualify for expensing under Section 179. According to NFIB’s November 2005 Small Business Economic Trends Report, 61 percent of small-business owners made capital outlays over the past six months.

Extension of the lower capital gains tax is also important to small businesses, says James Musser, legislative counsel of the American Small Business Association. “Two-thirds of Americans are now invested in the stock market through retirement plans, including SEPs (Simplified Employee Pensions) used by the self-employed and many small companies for employees,” he told JCK. “So, lower capital gains taxation is important to our retirement security.”

The tax cut package passed a day after the House passed three other tax bills offering businesses incentives to stay or establish in hurricane-ravaged Gulf Coast; extend some small tax breaks, including one that helps soldiers in combat claim the earned income tax credit, and a third which would lessen impact of the alternative minimum tax, which would hit 17 million individuals and families with higher taxes next year.

The bills must now be reconciled before year’s end with versions passed earlier in the Senate.

JCK