(Bloomberg News) House Majority Leader Eric Cantor's goal of giving millions of small businesses an extra 20 percent tax deduction would add to the hundreds of targeted breaks in the U.S. tax code, many of which Republicans have criticized.
Companies with fewer than 500 employees could take the deduction on top of their other write-offs under the proposal that Cantor, a Virginia Republican, plans to release in coming weeks. A similar plan in 2010 was estimated to add about $25 billion to the budget deficit over 10 years. There is no official cost estimate yet for the new plan.
"This is going in the opposite direction" of proposals to reduce income-tax rates by eliminating write-offs, said David Kautter, managing director of the Kogod Tax Center at American University in Washington. Cantor's plan "is a targeted tax incentive at a time when the focus is on getting rid of deductions and credits in the Internal Revenue Code," he said.
U.S. House Speaker John Boehner, an Ohio Republican, told reporters this month that if lawmakers are "serious about making America more competitive" they would revise the tax system for individuals and companies. President Barack Obama on Feb. 22 proposed reducing the corporate rate to 28 percent from 35 percent by eliminating some unspecified tax breaks.
Many targeted breaks are inserted into the tax code on a temporary basis, requiring lawmakers to periodically decide whether they should be extended. Senate Finance Committee Chairman Max Baucus, a Montana Democrat, said in January that such provisions are "disastrous."
Boehner and Cantor introduced a separate measure today also aimed at small businesses. That proposal would, among other things, make it easier for startup companies to find investors and allow small businesses to raise more money without registering with the Securities and Exchange Commission, according to a description of the bill released by Cantor's office.
Cantor said earlier this month that Republican leaders will bring the deduction bill to the House floor before the April 17 deadline for U.S. citizens and companies to pay their taxes. He and other House Republican leaders proposed a similar deduction in 2009 and 2010, though the measure didn't advance in the House, controlled at the time by Democrats.
'Pledge' In 2010
The idea was part of House Republicans' 2010 "pledge" to focus on job creation and fiscal responsibility as they campaigned to gain the House majority.
In preparing to propose the deduction again, Cantor must decide what types of companies would benefit and whether the break should be temporary or permanent.