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TheStreet Open House

Obama Tax Cuts Fall Short, Businesses Say

BOSTON ( TheStreet) -- President Barack Obama focused part of his State of the Union Address last night proposing tax incentives for small businesses, acknowledging that, lately, "it seems like bad behavior on Wall Street is rewarded but hard work on Main Street isn't."

While tax cuts, if Congress passes them, might spur growth at companies with fat order books looking to reduce costs, they would provide little solace to broken businesses that have no money left to spend.

Obama

The president reiterated initiatives he introduced in a speech at The Brookings Institute in December. He proposed tax breaks for small businesses that hire new employees and raise wages, and "while we're at it, let's also eliminate all capital-gains taxes on small-business investment and provide a tax incentive for all businesses, large and small, to invest in new plants and equipment," he said.

Taxes are a concern for small businesses, rating second only to poor sales as the most important problem they faced last year, according to a January report from the National Federation of Independent Businesses, which surveyed 830 small-business owners. Bill Rys, tax counsel for the NFIB, says tax cuts may encourage small businesses on the fence about whether to add employees, but only if they see the benefits right away such as rolling deductions into payroll taxes.

"We've suggested for about a year now, since when we were debating the first economic recovery bill, that a payroll-tax holiday would provide a lot of relief," Rys says.

Tax incentives might not be enough to spur capital expenditures. Only 18% of surveyed business owners plan to buy equipment in the next few months, according to the NFIB.

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