House Republicans Proposing 20% Small-Business Tax Cut

Representative Eric Cantor
Representative Eric Cantor. Photo: Andrew Harrer/Bloomberg

U.S. House Republicans proposed a one-year, 20 percent tax cut for businesses with fewer than 500 employees, following through on a 2010 campaign pledge.

“We should all be able to rally around the cause of small businesses,” House Majority Leader Eric Cantor of Virginia, sponsor of the plan, said at a news conference today in Washington. The tax cut would cost $45.9 billion, he said.

Unlike earlier proposals by House Republicans, the bill wouldn’t prevent any specific industry from qualifying for the break amounting to 20 percent of businesses’ income, according to text of the measure obtained by Bloomberg News. Income from the sale of capital assets wouldn’t qualify, nor would income from dividends, interest, royalties and annuities. Cantor’s office didn’t immediately release a bill text.

The measure would limit the value of the deduction to 50 percent of wages paid by companies to employees who aren’t owners. Those definitions and limitations may prevent many hedge funds from qualifying for a significant tax break.

Republicans are promoting the short-term, deficit-increasing legislation even as they try to reduce the budget deficit and overhaul the tax code to remove tax breaks and end the patchwork of temporary policies they often criticize.

‘Something Immediate’

“As we pursue long-term tax reform, we need something immediate,” House Ways and Means Committee Chairman Dave Camp of Michigan said at the news conference. He said he plans for the panel to vote on the measure by the end of next week.

Camp said the tax break, if enacted, would be allowed to expire after a year.

“This 20 percent deduction is something that will be immediate to” small businesses, he told reporters later. “It’s clear. It’s simple. They’ll be able to take advantage of it.”

The largest Washington lobbying groups that represent small businesses haven’t endorsed the bill.

Brad Close, vice president for federal public policy at the National Federation of Independent Business, said in a statement that the group “appreciates the continued focus” on small business.

“NFIB looks forward to working with Congress to advance a pro-growth tax policy for small business,” he said.

Chamber of Commerce

The U.S. Chamber of Commerce didn’t take a definitive position either.

“The Cantor bill adds to the debate and underscores the need for comprehensive, fundamental tax reform,” Blair Latoff, a chamber spokeswoman, said in an e-mail.

Other groups, including the International Franchise Association, the American Dental Association and the National Association of Home Builders, support the measure, according to a fact sheet from Cantor’s office.

Cantor and other House Republican leaders proposed a similar small-business tax deduction in 2009 and 2010. The measure didn’t advance in the House, controlled at the time by Democrats. Republicans then rolled the plan into the 2010 campaign agenda that propelled them to the House majority.

The earlier proposals wouldn’t have allowed the deduction for income from banking, insurance, financing or investing. They also excluded golf courses, massage parlors, gambling operations, farms, hotels, restaurants, engineering firms, accounting firms and producers of pornography.

Census Figures

Companies in those industries would be eligible for the tax break under the latest version of the bill, subject to the other limits and the definition of income.

According to 2008 figures from the U.S. Census Bureau, of the 5.9 million companies that weren’t sole proprietorships, 18,469, or 0.3 percent, had 500 or more workers. Those larger companies employed 50.6 percent of the U.S. work force.

Representative Sander Levin of Michigan said the proposal takes a “willy-nilly” approach to promoting economic growth.

“It’s unpaid-for and I think it’s very, very undisciplined in terms of who would benefit from it,” said Levin, the top Democrat on the Ways and Means Committee.

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