To encourage more entrepreneurs to offer pension plans to employees, the administration has proposed a credit for business owners of 50 percent of the first $2,000 spent for first-year administrative and educational costs associated with setting up a new qualified defined benefit or defined contribution retirement plan. The credit would be reduced to 50 percent of the first $1,000 for the same costs associated with the second and third years of the pension plan.
Retirement plans that would qualify for the credit include 401(k)s, Savings Incentive Match Plans for Employees (SIMPLEs) and Simplified Employee Pensions (SEPs). Employers could also offer their employees the opportunity to make pre-tax IRA contributions through payroll deductions. (For details on the tax advantages businesses now receive for offering these plans, see "Tax Talk," March 1998.)
On the energy conservation front, the administration wants to provide tax credits to businesses that invest in energy-efficient equipment and rooftop solar collectors. To encourage ride-sharing, business owners would be able to offer employees nontaxable transit and vanpool benefits of up to $175 per month starting next year, a sizable increase from the current monthly rate of $65.
The administration also hopes more employers will provide child-care services for their employees. Its proposal: In 1999, employers would be entitled to a credit of up to 25 percent of expenses (not to exceed $150,000) to build or acquire an employee child-care facility.
In an effort to provide minority-owned firms greater access to capital, Clinton has proposed some changes in the tax benefits for Specialized Small Business Investment Companies (SSBICs). These are investment firms licensed by the SBA under section 301(d) of the Small Business Investment Act of 1958, and they help fund many minority-owned businesses.
Under the proposal, the administration would let investors defer capital gains from the sale of publicly traded securities if the proceeds are reinvested in SSBICs within 180 days of the sale. Current law requires that proceeds be reinvested within 60 days.
Another proposed change would allow individual investors who buy shares of stock in these investment companies to roll over as much as $750,000 in capital gains during their lifetime. The current lifetime rollover limit for an individual investor is $500,000, which supporters of the change say is too small to create a significant capital market for minority entrepreneurs. Investors would be able to defer taxes on these assets as long as they hold shares in the investment companies. The lifetime limit for corporations would be $2 million.