Senate clears way for small-business aid package

Reporting from Washington —  The Senate on Tuesday advanced the Obama administration’s aid package for small business but failed to relieve millions of companies from onerous new tax filings, accelerating the election year debate over which party is most responsible for gridlock in Washington and lost jobs on Main Street.

Two Republicans joined Democrats in the vote to move the bill, which includes a $30-billion loan fund and other tax breaks for small businesses.

But lawmakers could not reach agreement on a way to spare small businesses from a new requirement to notify the Internal Revenue Service of every purchase of goods worth more than $600.

“I have never seen it like this,” said National Small Business Assn. President Todd McCracken, who has been lobbying Congress for more than two decades. “It is what makes small-business owners feel like their heads are going to explode.”

While the gridlock is politically risky for Republicans, it is likely to be particularly damaging to the Obama administration and congressional Democrats, who have advanced several substantial business aid packages over the last two years but are being accused of not doing enough to revive the economy.

The small-business bill that advanced Tuesday, which President Obama stumped hard to pass, would create a new government-operated fund to help smaller banks make loans to small businesses.

And it would offer $12 billion in tax breaks to encourage investment and hiring. Businesses would be able to write off more of the cost of buying new equipment and making improvements to their stores. Those who are self-employed could deduct healthcare costs. The bill would also continue to waive Small Business Administration loan fees that were cut in the 2009 recovery act.

“This bill will do more to support small businesses than any bill has in years,” said John Arensmeyer, president of Small Business Majority, a left-leaning business group.

Senators voted 61 to 37 Tuesday to end a GOP filibuster of the measure, clearing the way for passage later this week. The bill is then expected to pass quickly in the House, where Democrats hold a commanding majority.

Obama hailed the vote as a crucial step Tuesday. “This is a bill that would cut taxes and help provide loans to millions of small-business owners who create most of the new jobs in this country,” he said in a statement.

Republicans, who have long cast themselves as the champions of small business, almost unanimously opposed the package. The two GOP senators who voted for it are retiring.

Most Republican lawmakers slammed the package as misguided. “If there’s one message that my constituents have made clear, it is that they’re tired of bailouts,” said Texas Sen. John Cornyn, who heads the GOP Senate campaign committee, referring to the government backing of additional loans.

In Chicago, Roberto Carmona, chief executive of Crimson Leadership Group, a business-consulting firm with four full-time employees, said he was reserving judgment on the small-business legislation until he sees how it’s implemented.

“You see the battles, the trading,” he said. “Like all legislation, it looks one way when it’s going in.”

And although several leading business groups backed all or part of the bill, they attacked the Senate’s inability to deal with the other issue confronting small businesses: the tax reporting requirement.

R. Bruce Josten, senior lobbyist for the U.S. Chamber of Commerce, which is funding a multimillion-dollar campaign against Democratic congressional candidates nationwide, said the failure to eliminate the reporting mandate showed a “fundamental misunderstanding about the challenges facing this economy.”

The obscure section of the mammoth healthcare law that contains the burdensome IRS requirement was inserted to help offset the cost of expanding coverage to millions of uninsured Americans. It was supposed to generate approximately $17 billion over the next decade, according to the nonpartisan Joint Committee on Taxation, which Congress relies on for revenue estimates.

That plugged an important hole as Democrats struggled to keep the healthcare legislation from raising the deficit. (The law ultimately will shrink the deficit, according to final analyses of the bill).

But the provision, which goes into effect in 2012, has raised the prospect of an administrative nightmare for businesses.

“This is just one more opportunity for the government to make work,” said Richard Boehl, owner of QTE North America Inc. in Rancho Cucamonga, a small business that sells tools and supplies to machine shops and manufacturers.

“This is work that is not productive: It doesn’t produce any income; it doesn’t produce any profit. All it does is create an extra burden on the expense side of the ledger. And it’s going to bury a bunch of small businesses that are just barely hanging on, like me.”

Democrats and Republicans have said they are committed to modifying or eliminating the mandate, but they have been unable to agree on a solution.

Tuesday, Republicans blocked a Democratic proposal backed by the White House that would have scaled back the mandate by exempting businesses with 25 employees or fewer and by exempting transactions worth less than $5,000. The proposal was offset by eliminating a tax break for oil and gas companies.

Leading business groups said many businesses would still face the reporting headache.

Democrats in turn blocked a GOP proposal that would have eliminated the mandate entirely, but that also cut funding for public health programs and exempted more people from having to buy health insurance starting in 2014, a key provision designed to control premiums for everyone.

“Everyone wants to be our friend,” said McCracken at the National Small Business Assn. “But the effect is that everyone ends up being our enemy.”

noam.levey@latimes.com

lisa.mascaro@latimes.com

Andrea Chang in Los Angeles and Wailin Wong in Chicago contributed to this report.