Senate GOP: Small businesses would suffer if tax cuts expire

Senate Republicans on Wednesday pressed Democrats to extend all the tax cuts passed under President George W. Bush, arguing the party’s plan to let the breaks expire will hurt small businesses.

“Many of my colleagues on the other side don’t believe that a marginal rate increase of up to 17 percent on small-business owners will matter one wit,” said Senate Finance Committee ranking member Chuck Grassley (R-Iowa). “The impact of an increased cost, like higher taxes, on the owner of a small business cannot be ignored.”

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By year’s end, Democrats plan to extend tax relief for middle-class taxpayers and allow tax cuts for top earners to expire.
Republicans used a Senate Finance hearing on the fate of those tax cuts to blast the plan because it would not only increase taxes on the wealthy, but also hit small businesses that pay the higher tax rates.

“Maybe in the fantasy world of Washington, D.C., taxes aren’t a cost of doing business,” Grassley said. “Maybe some folks think they’ll just magically be made up somehow. But the reality of the business world is that businesses must adjust. Increased tax costs need to be made up somehow.”

Republicans said ending tax cuts for the wealthy would dry up the funds of small-business owners and make it harder for them to expand their operations. Grassley warned there would be political consequences for allowing tax cuts aimed at the wealthy to expire.

“Keep in mind, taxpayers are literally the folks footing the bill, and they will respond to an across-the-board tax increase,” he said.

Senate Majority Leader Harry Reid (D-Nev.) has accused Republicans of being in the pocket of big business and Wall Street. Democrats plan to paint the GOP as being against small businesses and the middle class in the run-up to November’s election.

Democrats are expected to lose seats in the midterm elections, but Reid hopes to limit the damage by advancing legislation that Democrats can highlight on the trail, such as the Wall Street reform bill, a small-business jobs package and an extension to unemployment insurance. Many Republicans are expected to oppose those measures.

During Wednesday’s hearing, committee Republicans relied heavily on testimony from Douglas Holtz-Eakin, a former presidential campaign adviser to Sen. John McCain (R-Ariz.) and one-time Congressional Budget Office director, to get their message across.

“Not raising top marginal tax rates is an important aspect of business tax policy and thus contributes substantially to the possibility of more rapid economic growth,” Holtz-Eakin said.

He added that extending tax breaks for the wealthy is a “better long-run economic policy for growth” and will create “faster GDP growth and more employment.”

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Democrats countered his argument by saying only 3 percent of small businesses would actually be affected by the tax increase.

Sen. Mike Enzi (R-Wyo.) said that was still too many.

“If I’m in that 3 percent, I’d feel like it was the 100 percent,” he said. “It would affect me very drastically, and I also know that when you’re in a small business — although you’re showing great income, if you don’t put that back into the business pretty quick you don’t have a business.”