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Republicans Ponder Plan for 20% Small-Business Tax Deduction

House Speaker John Boehner
House Speaker John Boehner. Photographer: Andrew Harrer/Bloomberg

May 26 (Bloomberg) -- Republicans in the U.S. House aren’t rushing to embrace a small-business tax break included in their campaign platform last year.

The proposal, which would provide a 20 percent deduction for companies with 500 or fewer employees, wasn’t included in a jobs plan released today by House Speaker John Boehner, an Ohio Republican.

The spending plan that House Republicans passed in April included language giving lawmakers budgetary room to advance the concept. Republican leaders haven’t introduced separate legislation to enact it.

Representative Dave Camp, chairman of the House Ways and Means Committee, said he wanted to consider the idea as part of a broader overhaul of the tax code. Without ruling out a special deduction for small businesses, he called for a rewrite of the tax code to lower rates and eliminate special tax breaks.

“We will incorporate tax relief for small business in our fundamental tax reform package that will be comprehensive,” Camp, a Michigan Republican, said today in Washington when asked about the omission of the small-business proposal. “What we’re looking at is having as low a rate as possible with as few exceptions, deductions, provisions, tax expenditures, preferences that we can have in the bill for simplicity, for certainty.”

The proposal in the 2010 campaign pledge was based on legislation Camp wrote that would provide a 20 percent deduction for two years.

Capital Infusion

“This will provide entrepreneurs with a much-needed infusion of capital for investment and new hiring,” the pledge said.

As written last year, the $25 billion tax break wouldn’t have applied to income from banking, insurance, professional sports teams, golf courses and country clubs, massage parlors, hot-tub and suntan facilities, gambling and animal-racing properties and the adult-film industry.

The deduction’s omission from the Republican jobs plan doesn’t mean it has been abandoned, said Brad Dayspring, a spokesman for House Majority Leader Eric Cantor, a Virginia Republican. Dayspring, in an e-mail, deferred to Camp on details of how it would be incorporated into a tax-code overhaul.

Echoing previous statements by Camp, the jobs plan calls for top rates of 25 percent for corporations and individuals, down from the current 35 percent.

Territorial System

The plan also calls for the U.S. to switch to a territorial tax system in which the government would exempt from taxation most profits earned outside the country. The U.S. now taxes profits earned outside the U.S. when the money is brought home, after allowing credits for taxes paid to other governments.

Camp said he wanted to consider the status of profits currently held overseas as part of his broader bill. Other Republicans, including Cantor and Representative Kevin Brady of Texas, want a one-time holiday on repatriated profits. They are supported by companies such as Cisco Systems Inc., Microsoft Corp. and Pfizer Inc.

Camp, who has been holding hearings and closed-door bipartisan meetings on the tax code said he didn’t have a “specific timeline” for proposing an overhaul measure.

“We’re continuing to work on it, but I’m not putting out a particular timeline,” he said.

Treasury Secretary Timothy Geithner said yesterday that the administration would focus more on corporate taxation after the current debate over raising the national debt limit is finished.

To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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