Center for American Progress

RELEASE: Cantor’s Small Business Bill is a $46 Billion Loophole for the Rich
Press Release

RELEASE: Cantor’s Small Business Bill is a $46 Billion Loophole for the Rich

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Washington D.C. — Today, in anticipation of a vote early next week by the U.S. House of Representatives on H.R. 9, a bill introduced by Majority Leader Eric Cantor (R-VA) to provide a one-year, 20 percent tax deduction for business income, the Center for American Progress released an analysis detailing the nine reasons why the House should reject the proposal.  

“The Cantor bill is sadly just another tax windfall for the rich,” said Seth Hanlon, author of the analysis and Director of Fiscal Reform at the Center for American Progress. “This bill is an ineffective giveaway to the rich, poorly targeted toward small businesses, and even more poorly targeted toward job creation. As an economic strategy it’s one we’ve tried before and a failure we don’t want to repeat. The House should reject this approach in favor of more powerful measures to create jobs.”

The analysis details the following nine reasons for why the House should reject H.R. 9:

  1. H.R. 9 is a giant windfall for the very wealthy, not an incentive for small-business job creation. The term “small business” evokes images of mom-and-pop stores or startups hoping to expand, but Cantor’s bill would give its biggest tax cuts to enterprises that are anything but small, including sports teams and celebrity-owned entertainment companies. These businesses and their owners would reap a giant windfall from the Cantor bill. The bill would also provide a sizeable tax cut to many highly paid professionals, including lawyers, lobbyists, doctors, stockbrokers, hedge fund managers, and other financial industry professionals.
  2. Half of H.R. 9’s tax cuts go to millionaires, not to business owners who would most benefit from a tax break. Cantor’s tax deduction gives the biggest benefit to businesses that are already earning the largest profits and to business owners in the top tax brackets.
  3. H.R. 9 would benefit companies that eliminate or offshore jobs. Under the Cantor bill there is no requirement that a business owner use the extra cash from the tax cut to reinvest in his or her business, as opposed to spending it on personal consumption or simply putting it in the bank. Businesses that do not create jobs—and even those that lay off employees or offshore jobs—are still eligible for the deduction.
  4. H.R. 9’s temporary tax break on business profits is a windfall, not an incentive. For most business owners H.R. 9 would be a pure windfall with no effect on investment or job creation. Business owners make investments and hire people not because they have extra cash lying around but because those investments and hires will increase revenues by more than their cost. Cantor’s bill is just a windfall with little or no effect on incentives to hire or invest.
  5. H.R. 9 arbitrarily favors some businesses over others. The Cantor bill claims to be neutral toward businesses, giving all the same tax benefit. But a closer look at the bill reveals that it hardly creates a level playing field, instead it picks winners according to arbitrary criteria.
  6. H.R. 9 encourages businesses to wait until next year to make investments. The 20 percent deduction applies only to 2012, which means that business owners have a strong incentive to maximize taxable income in 2012 while minimizing it in 2013. One way they can do this is by delaying investments until 2013, so that any resulting tax deductions lower the business’s taxable income next year rather than this year.
  7. H.R. 9 misdiagnoses the fundamental problem facing small businesses and the broader economy—a lack of demand. The ostensible goal of Cantor’s bill is to “help put more Americans back to work right away.” In other words, the legislation should provide what used to be called “stimulus.” But economists agree that the economy is under capacity and that the major challenge today is a lack of demand. Small-business owners also seem to agree, identifying “poor sales,” or the lack of demand for their products and services, as their top concern in a prominent survey every month since June 2008.
  8. H.R. 9 is the opposite of tax reform. To implement the temporary 20 percent deduction, the bill adds a new section to the Internal Revenue Code and also mandates new Treasury regulations. It would require a complicated new tax form and additional regulatory guidance, worsen compliance and record-keeping burdens on small businesses, and lead to more disputes between small businesses and the Internal Revenue Service, according to the IRS and the Joint Tax Committee. In short, by creating more unfairness and complexity, H.R. 9 exemplifies all that is wrong with the existing tax code. It is the opposite of tax reform.
  9. H.R. 9 is paid for by $46 billion in borrowed money. Despite being a one-time, temporary giveaway, Rep. Cantor’s bill would inflate budget deficits by $46 billion. There are no offsets, meaning that it is entirely deficit-financed. That approach contrasts with proposals like those in President Barack Obama’s American Jobs Act, which were not only more powerful measures to create jobs but were also fully paid for.

Read the column: "Cantor’s ‘Small Business’ Bill is a $46 Billion Loophole for the Rich"

To speak with a CAP expert on this topic, please contact Katie Peters at 202.741.6285 or email [email protected] .