The House Ways and Means Committee has passed a Republican-sponsored bill aimed at reducing taxes for small businesses that would also benefit larger companies.

The Small Business Tax Cut Act was approved Wednesday by a vote of 21-14.

"I am pleased the Committee has reported out this bill and look forward to its consideration on the House floor,” said House Ways and Means Chairman Dave Camp, R-Mich., in a statement. “It is important that after more than three years of failed economic policy from the Obama administration that we take this step to immediately help small businesses and their workers."

The bill was introduced last week by House Majority Leader Eric Cantor, R-Va., and would allow companies with fewer than 500 employees to deduct up to 20 percent of their active business income, or profits, with a limit of up to 50 percent of the wages paid to employees who do not own the business.

“Small businesses are the key to economic growth and job creation in this country,” said Cantor. “That’s why the House is moving forward with real solutions to free up capital and drive small business job creation.” Cantor plans to send the bill for a vote in the House in April.

House Democrats argued that the bill would apply to many businesses that are not normally considered small businesses. “This one-year tax cut costs $46 billion, revenue that could be better spent on provisions that promote hiring and investment, or on rebuilding our infrastructure,” said Rep. Sander Levin, D-Mich., the ranking member on the committee. “This cost is not paid for here, so either the majority plans to add some undisclosed offsets later or simply add to the deficit. Neither approach satisfies the test of fiscal responsibility by this distinguished committee.”

He pointed out that the tax cut be available to 99.6 percent of businesses, including law firms and doctor offices, consultants, grocery and liquor stores.

A Democratic member of the company, Rep. Xavier Becerra, D-Calif., asked Joint Committee on Taxation chief of staff Thomas Barthold during the markup of the legislation Wednesday what types of businesses would benefit under the proposal to give an across-the-board 20 percent tax cut to businesses, and noted that they would be able to claim the tax cut whether they hired people, laid people off or sent jobs overseas. Becerra asked whether Paris Hilton Entertainment or Larry Flynt Productions would qualify for the tax cut, and was told that they would as long as they had less than five employees.

“What if a company fires an employee in the United States and lays off an American worker and then hires people abroad by outsourcing that job, could that company still qualify for that tax cut?” asked Becerra. Bathold responded that they could still qualify.

Senate Democrats have offered a competing bill, sponsored by Senator Majority Leader Harry Reid, D-Nev., and Sen. Charles Schumer, D-N.Y., which would give companies another year in which they could write off 100 percent of their capital investments in the first year. The 100 percent bonus depreciation tax break had expired at the end of last year. The $26 billion bill would also give businesses a tax credit of 10 percent of the salaries for newly hired employees or for raises for their existing employees. The bill would apply to companies of any size.

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access