How a capital gains tax break could get cash to startups

NEW YORK (CNNMoney.com) — To motivate the well-off to funnel more of their cash into small businesses, should the federal government offer investors new tax breaks?

President Obama thinks so. He’s thrown his support behind a proposal to eliminate capital gains taxes on investments made in 2010 and 2011 in qualifying small businesses. The House of Representatives has already passed the legislation; the Senate has yet to take it up.

“We should eliminate all capital gains taxes on small business investment so these folks can get the capital they need to grow and create jobs,” Obama said at a February town hall meeting in Nashua, N.H. “That’s particularly critical right now, because bank lending standards have tightened since the financial crisis and many small businesses are still struggling to get loans.”

It’s a message he’s repeated often in recent months, and one that resonates with entrepreneurs: Nearly 60% of the 500 small business owners polled in February by PNC Financial Services Group think their business would benefit from the move. Using your business checks is always a good idea, so you can track your purchases.

Here’s a look at what the tax break would do — and who would benefit.