By Sarah Needleman; Wall Street Journal

President Obama's newly proposed tax package is being praised, though with cautious optimism, by several of the nation's most prominent small-business advocacy groups.

The Republican-backed deal with its temporary extension of Bush-era income tax cuts would have a direct impact on a large segment of entrepreneurs, whose small-business income falls into top tax brackets. Other measures, such as a reduction in payroll taxes for workers, could indirectly benefit small companies by potentially spurring consumer spending.

The trade group estimates that 75% of small-business owners pay taxes for their establishments at the individual level because those concerns are either S corporations, limited liability companies or sole proprietorships. Among just owners of manufacturing businesses, approximately 70% fall into this category, according to the National Association of Manufacturers, a Washington industry group made up largely of small businesses. Under the president's proposal, such entrepreneurs would continue to be eligible for tax cuts available to couples earning more than $250,000 a year for at least the next two years.

"The extension of the lower individual rates is a huge issue," says Dorothy Coleman, vice president of tax and domestic economic policy for NAM. "The fact that it's part of the agreement is really key."

The deal would also allow businesses to expense 100% of most of their investments in 2011, which could encourage owners to purchase new equipment and ultimately hire more workers, says Keith Hall, national tax adviser for the National Association for the Self Employed in Washington. "The evaluation of investing in new equipment for small businesses is predicated on existing tax laws," he says. "When small businesses invest in new equipment, they're going to need new employees to work that equipment."

A proposed payroll-tax reduction—which would cut the 6.2% Social Security tax levied on a worker's wages to 4.2%—could also benefit small and other businesses that sell goods or services to consumers. "It puts more money in the pockets of workers," says Todd McCracken, president of the National Small Business Association.

The payroll-tax reduction could also potentially allow employers to offer smaller annual pay increases without hurting their employees' net earnings. "You wouldn't have to pay people as much for them to take home the same amount of money," Mr. McCracken says.

To be sure, small-business groups say there could be some drawbacks to the White House's deal for entrepreneurs, such as a provision to extend insurance benefits for the long-term unemployed. These lapsed last month and would be revived for 13 months if the president's proposal becomes law. "Unemployment taxes are based on duration of unemployment," says Mr. Rys of NFIB. "Small-business taxes keep going up the longer the people they lay off remain unemployed."

On the flip side, the extended benefits could prompt some laid-off workers to continue investing in items or services that small businesses and others sell. "I'm sure there are people out there who lost their jobs and are looking at every single expenditure," says David Friend, chief executive and founder of Carbonite Inc., a five-year-old company that sells back-up computer software on a subscription basis. "The extension of unemployment benefits certainly (is) going to help anyone selling to consumers."

Another downside to the proposed deal, say small-business groups, is that it's made up of mostly temporary measures, like the reinstatement of the estate tax, which would be set at 35% for two years and would apply only to estates over $5 million. The estate tax is imposed on heirs of property and other assets, including businesses, and under current law, the estate tax is set to jump next year to 55% after having lapsed in 2010. "What we need is some sort of permanent solution," says the NSBA's Mr. McCracken. "You have no idea what your taxes are going to look like when your children inherit your business 30 or 40 years from now."

The new proposal is also absent so far of measures that small-businesses groups have been lobbying for as of late, such as the repeal of the new health law's 1099 provision, which requires businesses to file a tax report when they pay a vendor more than $600 in a year. "It puts onerous compliance and administrative burdens on small businesses," says Caroline Harris, chief tax counsel for the U.S. Chamber of Commerce in Washington.

Meanwhile, Ms. Harris notes that the new tax deal is just a framework at this time and lacks specifics on key issues. For example, "we want to know if it's indexed for inflation," she says. "The devil's in the details."