CQ TODAY ONLINE NEWS
March 21, 2012 – 10:46 p.m.
GOP’s New Tax Cut Aimed at Small Businesses
By Sam Goldfarb, CQ Staff
House Republicans say their new small-business tax cut proposal is aimed at bringing companies needed financial relief in a still-weak economic recovery, but there are early signs Democrats will reject the plan as too costly and poorly timed.
The GOP bill was introduced Wednesday by House Majority Leader
“If our goal is to get the economy moving, we’ve got to help small businesses,” Cantor said at a press conference in front of the Capitol.
Cantor expects the House to vote on the bill before April 15, and Ways and Means Chairman
Cantor said he hoped for bipartisan support, but it seemed likely that Democrats would turn aside legislation that’s been introduced amid the heated election-year debates over budget priorities, the weak post-recession economic recovery and the mounting federal deficit. Rep.
“It’s unpaid for and I think it’s very, very undisciplined in terms of who would benefit from it,” Levin said. The Michigan Democrat later added, “I think we need proposals that are seriously linked to promoting small business growth. This is, I think, willy-nilly.”
“Until you settle the budgetary issues,” said Massachusetts Democrat
Rep.
Even if it does not make it to the president’s desk, the GOP bill will still highlight large tax policy issues that are not going away, including the blurred line between small businesses, which are popular with the public, and wealthy individuals, who would pay higher taxes under the Obama administration budget proposal. Although small businesses are widely viewed as engines of job growth, many companies have their profits distributed to just a few owners who then pay taxes on that income under the individual income tax. Those owners, Levin noted, could include successful lawyers, doctors and entertainers, in addition to the struggling corner grocery operator.
The GOP bill contains no restrictions on what type of business could claim the tax deduction. But its benefits could be somewhat limited for financial companies or any business that sells capital assets, royalties, rents or dividends, because income from those sources would be excluded from the tax break. In addition, the value of the tax break would be capped at 50 percent of a company’s wages.
Shifting Positions
Beyond hearing concerns over the bill’s effect on the wealthy, Republicans also could face questions over why they are offering the measure after arguing for months the tax code should feature fewer temporary provisions so that businesses can more easily plan for the future.
Republicans said Wednesday they still want a permanent overhaul of the tax code, with lower tax rates and fewer credits and deductions, but say small businesses need immediate assistance.
GOP’s New Tax Cut Aimed at Small Businesses
“We are laying out a vision for tax reform,” Cantor said. “But in the interim, while we try to grapple with the very difficult issues around comprehensive tax reform, we need to help businesses.”
Should they oppose the Republican bill, Democrats also could find themselves in the position of raising budgetary concerns after happily accepting a costly extension of the Social Security payroll tax cut just one month ago.
But the seemingly contradictory positions of the two parties come through their differing economic philosophies. Although they ultimately supported the payroll tax cut extension (PL 112-96), many Republicans were skeptical that adding to the paychecks of average workers would boost demand for goods and services and thus stimulate the economy. Democrats, meanwhile, are skeptical that businesses, if given a smaller tax burden, would hire more workers.
Cantor argued that the budgetary effect of the tax break would be effectively offset by other Republican proposals to reduce mandatory spending.