The U.S. House Ways and Means Committee approved a $46 billion small-business tax break on a 21-14 party-line vote, as Republicans eager to aid companies’ cash flow overcame Democratic objections.
Under the bill, companies with fewer than 500 workers in either 2010 or 2011 would be eligible to deduct 20 percent of their profits in 2012. Such a broad tax cut with few limits would give small companies money to reinvest in their businesses, said Representative Dave Camp, the committee chairman, as the panel considered the bill today.
“These business owners are real experts who know what they need to add jobs back to our communities,” said Camp, a Michigan Republican.
The committee’s approval sends the bill to the full House for a vote expected by the April 17 filing deadline for individual U.S. taxpayers, drawing attention to the measure at a time when Americans are most interested in taxes.
Democrats on the panel criticized the bill for not tying the tax break to hiring or investment, and their objections signaled that the measure may not fare well in the Democratic-controlled Senate as currently written.
“This is another bonanza for the very wealthy,” said Representative Sander Levin of Michigan, the committee’s top Democrat. “It is not targeted. It is essentially not for the typical small business person.”
Levin cited an analysis from the nonpartisan Tax Policy Center showing that 49 percent of the benefit would go to households with incomes exceeding $1 million.
The proposal contains limits, including a cap on the deduction of 50 percent of wages paid to employees who aren’t owners. Certain types of passive income, such as royalties and rents, couldn’t be counted as eligible income for calculating the tax break.
The bill, sponsored by House Majority Leader Eric Cantor, a Virginia Republican, would apply for this year only. The measure includes no offsetting spending cuts or tax increases.
Democrats noted changes from previous versions of the bill. Republicans removed a list of industries that had been deemed ineligible, including pornography producers, professional sports franchises, hotel owners and golf courses. The bill lets partnerships count profit distributions to partners with stakes of less than 10 percent as wages for the purpose of the 50 percent cap.
‘Big Tax Advantage’
“We’re really giving a big tax advantage to lawyers, lobbyists, accountants and hedge-fund managers,” said Representative Pete Stark, a California Democrat.
Democrats pointed out that sole proprietors who don’t pay wages to non-owners wouldn’t be eligible.
With the annual tax-filing deadline approaching, Senate Democrats have proposed their own small-business tax break.
That bill would revive for 2012 the ability of companies to write off 100 percent of capital investments. It also would provide a 10 percent income credit, capped at $500,000 per company, for employers that expand their payrolls.
Camp said he supports the capital investment write-off and suggested that the provision might be an avenue for compromise in negotiations between the House and Senate.
The House bill is HR 9. The Senate bill is S 2237.