Bloomberg News

Small-Business Tax Cut Bill Points Up Divide on Economy

April 19, 2012

Representative Eric Cantor, a Republican from Virginia, in Washington. Photographer: Andrew Harrer/Bloomberg

Representative Eric Cantor, a Republican from Virginia, in Washington. Photographer: Andrew Harrer/Bloomberg

The U.S. House passed a one-time tax break of as much as 20 percent for small businesses in a vote that mostly served to illustrate the differences between the parties’ election-year agendas.

The Republican-controlled House voted 235-173 for Majority Leader Eric Cantor’s proposal to provide the $46 billion tax deduction. The measure now goes to the Senate where it is certain to be killed by Democrats.

Republicans say the tax cut would boost the economy by freeing up cash that companies could use to hire workers, provide raises or invest in equipment. The plan would allow companies with fewer than 500 workers in either 2010 or 2011 to deduct 20 percent of their profits in 2012. Its cost would be added to the U.S. budget deficit.

“We should not be taking money out of the hands of those we are counting on to create jobs,” said Cantor, a Virginia Republican. “We need to let small-business owners keep more of their hard-earned money so they can start hiring again.”

Democrats said the tax cut would go to companies regardless of how profitable they are, what they sell or whether they are hiring.

“This bill provides a windfall tax break to hedge-fund owners, to big Washington law firms, to the very wealthy even if they don’t hire a single person,” said Representative Chris Van Hollen, the top Democrat on the Budget Committee.

Vote Breakdown

Eighteen Democrats voted for the plan; 10 Republicans opposed it.

The vote was the second this week designed primarily to highlight the differences between the parties’ economic priorities as jobs and the deficit rank in public opinion polls among voters’ top concerns.

A Pew Research Center survey of almost 2,400 registered voters released this week showed that voters’ top concerns are the economy, jobs and the budget deficit.

More than eight in 10 voters called the economy and jobs “very important” in deciding how they will vote in the November election while 74 percent cited the deficit. By contrast, fewer than 50 percent called abortion, immigration, Iran or the war in Afghanistan “very important” concerns.

“This is about the theater of the election year and everybody knows it,” said Representative Richard Neal, a Massachusetts Democrat, before the vote.

Buffett Rule

Earlier this week, Senate Democrats demanded a vote on the Obama administration’s Buffett rule proposal, which would impose a 30 percent minimum rate for taxpayers earning $2 million a year. Senate Republicans on April 16 blocked the measure, which Democrats said showed they are unconcerned with fairness in the tax code.

Texas Republican Representative Pete Sessions said, “Democrats think that we can tax our way to improving our economy.”

Senate Democrats also are pushing a competing plan that would extend write-offs for capital investment and award a 10 percent tax break for companies that add to their payrolls.

“Our plan encourages small businesses to hire new employees and expand their operations,” Senate Majority Leader Harry Reid, a Nevada Democrat, said at a news conference today.

Some economists said such measures wouldn’t make much difference in hiring.

‘Small Potatoes’

“Small potatoes,” said Nariman Behravesh, chief economist at Englewood, Colorado-based IHS Inc. (IHS:US), a forecasting company. Businesses are much more concerned about a lack of demand for their products and services than their tax rates, he said. The main purpose of the competing small businesses plans is to woo voters concerned about the economy, he said.

“Both parties in the run-up to the election want to be able to say: Here’s what we are doing,” Behravesh said. “That’s what this is really about -- politics.”

Mark Zandi, chief economist at Moody’s Analytics Inc., said he is “not a big fan of either proposal. With the economic recovery on more solid ground and increasingly broad-based,” he said, lawmakers should focus on simplifying the corporate side of the U.S. tax code. “These proposals go in the other direction.”

House Republicans last month adopted a budget calling for an overhaul and simplification of the tax code that would clamp down on breaks like the one passed today.

Cantor acknowledged the bill isn’t a “panacea” for unemployment. It would nevertheless boost hiring, he said, while lawmakers work out their “big differences” on a broader tax rewrite.

Asked whether the U.S. Chamber of Commerce supports the House plan, spokeswoman Blair Latoff said in an e-mail: “The bill adds to the debate about tax reform. The chamber believes now is the time for comprehensive, fundamental tax reform.”

The bill is H.R. 9.

To contact the reporter on this story: Brian Faler in Washington at bfaler@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net


Too Cool for Crisis Management
LIMITED-TIME OFFER SUBSCRIBE NOW

Companies Mentioned

  • IHS
    (IHS Inc)
    • $129.53 USD
    • -0.86
    • -0.66%
Market data is delayed at least 15 minutes.
 
blog comments powered by Disqus