(Bloomberg News) The U.S. House is set to pass a tax cut for small businesses in a vote that will underscore the divergent fiscal priorities of Republicans and Democrats in Congress.
The Republican-led House plans to vote today on a measure introduced by Majority Leader Eric Cantor that would provide up to a 20 percent tax deduction to businesses with fewer than 500 employees. Republicans say it would boost the economy by freeing up cash that companies could use to hire workers, give raises or invest in equipment. The measure's $46 billion cost would be added to the U.S. budget deficit.
"The 20 percent small business tax cut is something we felt was the very least we could do to help the job generators right now that are having so much difficulty," Cantor, a Virginia Republican, said today at an event in Washington sponsored by Politico.
Democrats are critical of the proposal and say the tax cut would go to businesses regardless of how profitable they are, what they sell or whether they are hiring. Democrats plan to vote against the bill in the House, and it isn't expected to advance in the Democratic-led Senate.
"It allows a company to fire American workers and get a tax break, it allows a company to ship jobs overseas and get a tax break," said Representative Xavier Becerra, a California Democrat. "Republicans are simply peddling a Trojan horse."
Deduction in 2012
Under the bill, companies that had fewer than 500 workers in either 2010 or 2011 would be eligible to deduct 20 percent of their profits in 2012.
The vote is slated to be the second this week intended primarily to emphasize the parties' differences on taxes. 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 and more. Senate Republicans on April 16 blocked the measure from advancing, though Democrats will continue making the case for the Buffett rule in political campaigns this year.
In the Senate, Democrats also are pushing proposals to extend write-offs for capital investment and award a 10 percent tax break for companies that add to their payrolls.
Some economists said such measures wouldn't make much difference in hiring.
"Small potatoes," said Nariman Behravesh, chief economist at Englewood, Colorado-based IHS Inc., 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.
'What We Are Doing'
"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's "not a big fan of either proposal." Zandi said "with the economic recovery on more solid ground and increasingly broad- based," lawmakers ought to focus on simplifying the corporate side of the U.S. tax code.
Congress's nonpartisan Joint Committee on Taxation said the House small-business tax cut bill's effect on the economy would be "so small as to be incalculable."
"The one year of tax savings provided by the bill is unlikely to make the costs of much investment in physical capital or labor recruitment and training worthwhile," the committee said.
House Republicans last month adopted a budget calling for an overhaul and simplification of the tax code that would clamp down on breaks such the measure set for a vote today.
"They talked about eliminating loopholes," said Becerra, and "this is one mother of a loophole they would be adding to the tax code at the cost of $46 billion."
The bill is H.R. 9.