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With bipartisanship a rare commodity on Capitol Hill and prospects of tax reform this year all but extinguished, House Majority Leader Eric Cantor is moving forward with a narrow tax cut measure aimed at reducing small-business tax rates for the next year.
Under the Virginia Republican’s bill, which will be introduced in the House today, small businesses with 499 or fewer employees would be able to deduct up to 20 percent of their income taxes, which could total up to 50 percent of the wages they pay employees.
The goal, Cantor said Tuesday, is to “help small businesses create more jobs” while Congress continues to struggle with the broader tax reform effort.
The House is expected to take up the bill during the week of April 16. Individual tax filings are due on the 16th. Cantor said his decision to pursue the narrowly crafted measure is based “on the same concept as behind the JOBS Act,” which passed the House by a wide bipartisan margin and could pass the Senate as soon as this week.
Cantor did not include exclusions for certain types of small businesses, and he opted to use the Small Business Administration’s definition of a small business to determine who should qualify for the tax cut.
Democrats have previously criticized his plan, arguing that it would apply to sports teams or wealthy financial firms. But Cantor rejected that argument, noting, “Do you do that with marginal tax rates?”
“That’s a false position or argument. ... We don’t do that with the overall tax code,” Cantor added, questioning the validity of Congress choosing which types of small businesses should be able to qualify for tax breaks.
Cantor told Roll Call that he and other Republican leaders “would like to drive toward overall tax reform” this year but that he views the 20 percent tax cut as a necessary step “while we are working toward that goal.”
In fact, Republicans and Democrats have been meeting with administration officials on and off for the past several months in hopes of finding some sort of common ground for a grand compromise on tax reform.
For instance, earlier this month, Senate Finance Chairman Max Baucus (D-Mont.), Finance ranking member Orrin Hatch (R-Utah), House Ways and Means Chairman Dave Camp (R-Mich.) and Ways and Means ranking member Sander Levin (D-Mich.) met with Treasury Secretary Timothy Geithner to discuss the state of play.
Baucus and Camp have also held separate meetings to discuss possible ways forward.
But despite those efforts, most observers agree that a comprehensive bill is unlikely before the November elections — a fact Cantor said he is keenly aware of.
For Cantor, the biggest problem facing the efforts at reform are the same issues that have plagued efforts for other “grand bargains” during this session of Congress. “We tried to do that all last year,” Cantor said.
“We’ve always said we’d like to see comprehensive reform ... [but] the fundamental differences are still there” between Democrats and Republicans.
House Democrats said they are wary of new tax cuts and insisted it should be part of a broader reform of the tax code that eliminates loopholes that corporations and wealthy Americans use to significantly lower their tax rate — or even avoid paying taxes altogether.
House Minority Whip Steny Hoyer (D-Md.) said Democrats are not necessarily opposed to cutting taxes for small businesses.
“We’ve have had tax cuts, as you know, when we were in charge, for small businesses. Numerous tax cuts to encourage hiring of people to encourage investing in business equipment,” Hoyer said.
“So we want to see that, we want to encourage businesses to grow.”
But Hoyer nevertheless chided Cantor, arguing, “It is easy, and requires no courage, to cut taxes. But what takes some courage and responsibility is making sure that your revenues match your expenditures. We haven’t done very well with that in the last decade.”
Hoyer said Democrats would keep an open mind “but piecemealing it is not what we ought to be doing. ... I’m a strong proponent of a big, bold and balanced plan, which includes all elements of expenditures.”