This week, the House Republican
leadership is expected to bring up the “Small
Business Tax Cut Act,” a bill to let most business
owners deduct up to 20 percent of their business income in
2012 — a $46 billion tax cut. Despite the Mom-and-Pop label,
it is designed so that nearly half of the tax cut would go
to people with annual income over $1 million, and more than
four-fifths would go to those making over $200,000, according
to the Tax Policy Center.
The bill’s proponents, led by
Majority Leader Eric Cantor, say that lower taxes would lead
to more hiring. But the economic reality is that employers,
big and small, are hesitant to hire because of slow or
uncertain demand for their products and services, not
because of their tax burden. And companies would receive the
tax cut even if they did not hire new workers — making it a
windfall, not an incentive.
The bill is predicated on an overly
broad definition of “small business” — one with fewer than
500 employees, which can include multimillion-dollar
partnerships and corporations. It is also based on a willful
denial of the reality that small
businesses are not the big job
creators politicians often say they are.
If “small” were set at 50 employees,
small businesses would be credited with creating less than a
third of the new jobs over the last 20 years. And many such
jobs are soon lost as small businesses struggle or fail. The
best way to encourage their success is with continued
government spending to support demand and by building a
well-regulated banking system that is not prone to the busts
that devastate small businesses.
As for the broader economy, the
Congressional Budget Office analyzed
13 policies last year for their potential impact on economic
growth and job creation in 2012 and 2013. The option of a
business tax cut along the lines of the Cantor bill ranked
next to last in bang for the buck. More effective options
include fiscal aid to states and increased safety net
spending, which create jobs by bolstering consumer demand —
and which Republicans fiercely oppose.
Another immediate step Congress
could take to create demand and jobs would be for House
Republicans to drop their objections and reauthorize the
highway bill, at least for two years, as the Senate has
done. That would help private-sector contractors and
suppliers, as well as government workers, boosting local
businesses in areas where jobs are created. Extending the
research and development tax credit would also help some
businesses, but Senate Republicans have
blocked that.
The business tax cut for
not-so-small businesses will almost certainly pass the
House. Senate Democrats have introduced a tax relief bill
that is linked specifically to companies hiring new
employees. They should stick with that. This doesn’t mean
that the tax system doesn’t need fixing. It does. In the
Senate this week, the Democratic leadership will make an
argument for more fairness, by calling for a vote on the
Buffett Rule. It would require the wealthiest taxpayers to
pay at least 30 percent of their income in federal taxes
and, in the process, raise some $47 billion over 10 years.
Republican senators are expected to block the vote. When you
mail your taxes this week, think about that.
