Go Big or Go Home

The Small Business Tax Cut Act of 2012 is a bad idea, and worse, it’s a waste of time.


While most of this blog is focused on critiques of liberal policies and ideas, I would be remiss if I didn’t comment on the impending vote on the Small Business Tax Cut Act of 2012. This bill is a Republican bill being pushed by Majority Leader Cantor.

Liberals are, of course, maligning the bill as corporate welfare for Oprah and in other predictable class warfare-esque ways. They are opposed to the bill for all of the usual, often unrelated, reasons.

Majority Leader Cantor’s office describes the bill as follows:

Our 20% small business tax cut goes straight to the bottom line so small business owners can retain more capital, invest in their businesses and create more jobs. Small businesses would be allowed to deduct 20% of their income from taxes irrespective of how they are organized, up to 50% of their W-2 wages (in some cases distributions made to partners may be treated as W-2 wages for these purposes).

Eligible small businesses must have fewer than 500 employees. The 50% W-2 wage limitation is similar to thelimitation under the domestic manufacturing deduction (section 199).

To which I say: No. No. No. THIS IS NOT TAX REFORM!

Yes, we now have the highest statutory corporate tax rate in the world. But that doesn’t mean you throw away all of the work done on tax reform by the House Ways and Means Committee and the Senate Finance Committee with a new tax deduction for some businesses (and not others) that the Senate will never pass.

I get it, this is politics. I generally know how Hill politics works. However, I think this just damages the prospects for tax reform and prolongs the wait before Congress will actually be able to replicate 1986 and pass comprehensive tax reform. Which is why I think pursuing it is a bad idea.

Moreover, isn’t tax reform about fewer deductions? Isn’t tax reform about not picking winners and losers — like small over mid-size and big businesses, or wage-intensive entities over capital-intensive entities?

Don’t get me wrong, I want lower taxes. I want them for businesses of all sizes and shapes. Lower the rates, broaden the base, cut back (if not eliminate nearly all) deductions and credits.

Sadly, the bill does pick winners and losers, adds a new deduction. It fails the test of getting towards tax reform, and will never be passed by the Senate. Thus, it’s an absolute waste of time. 


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