House GOP supports temporary small-business tax break

After deriding the payroll tax cut as a short-term “sugar high” for the economy, House Republicans are rallying around a new temporary tax cut for small businesses.

GOP lawmakers acknowledge they would be setting themselves up for criticism by endorsing a temporary tax measure after taking a stand against the payroll tax holiday, and no final decision has been made. Many Republicans also insist they would prefer the small-business tax break be enacted permanently.

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 But Republicans on Capitol Hill say giving the small-business proposal an end date gives it a better shot at becoming law.

“I prefer long-term tax policy, but understand we have to work within the confines of what we have now, which is a president and a Senate that are under different control,” said Rep. Patrick 

Tiberi (R-Ohio), who chairs a House Ways and Means subcommittee that deals with the tax code.

Although scores of Republicans voted to extend the payroll tax cut through this year in February, many in the GOP camp still generally believe it will do little to help the economy or create jobs. They argue that while the small-business proposal is also temporary, putting money directly into the pockets of small-business owners, instead of workers, would give the economy more of a boost. 

“Look, stimulus spending and temporary tax rebates, they didn’t work when President Bush tried them. They didn’t work when President Obama tried them,” Rep. Paul Ryan (R-Wis.), the chairman of the House Budget Committee, said on NBC’s “Meet the Press” last month. “And they’re a very poor substitute for pro-growth economic policies.”

The tax cut, which was included in the GOP’s 2010 campaign pledge, is part of a broader House Republican push to help smaller companies, and comes on the heels of House passage of a bipartisan jobs bill that seeks to increase small business access to capital. 

A House GOP leadership aide said Monday that the Republican conference hoped to roll out the small-business proposal next week and to pass it around the time taxes are due in April. 

According to a summary of the proposal provided by House Majority Leader Eric Cantor’s (R-Va.) office, the plan would give millions of businesses with fewer than 500 employees — one federal definition of a small business — the ability to essentially exclude 20 percent of their income from taxation.

Unlike similar legislation offered by House Republicans in recent years, the new proposal outlined by Cantor’s office would not exempt businesses like professional sports teams and financial services firms.

Democratic aides said that would provide more tax relief for hedge fund executives, which many Democrats argue already pay too small a tax bill. 

They also suggested the Democratic-controlled Senate would be more likely to consider small-business measures floated by the administration, such as an income tax credit for new payroll. 

“The Cantor plan is a Trojan Horse — it would only further complicate the tax code for small-business owners, while creating new loopholes for hedge fund managers to exploit,” one congressional Democratic aide told The Hill. “If you’re looking to help small businesses, this plan doesn’t get the job done.”

With that in mind, some GOP lawmakers believe party leaders should go forward with a permanent plan, which they say would be more in line with Republican principles. 

Rep. Tom Reed (R-N.Y.) said he would be able to back a temporary small-business tax cut. But the freshman congressman was also deeply skeptical that the Senate would pass any version of the Republican idea.

“Put our names up, put our vote up to say what do you stand for,” said Reed, a member of the Ways and Means Committee, who added he believed the tax cut could be in place for as little as one year. “And we stand for good, sound, competitive tax policy on a permanent basis.”

And while Democrats charge that the Republican proposal would add another layer of complexity into the code, GOP tax-writers say their plan, unlike the payroll tax holiday, could move the ball forward on tax reform.

“If I were king, I’d do it differently,” Tiberi said. “But I don’t think it’s incompatible with what we’re trying to get to.”