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Small Business Tax Cut Act Passed in House

Today, the House voted to pass H.R. 9, the “Small Business Tax Cut Act,” by a vote of 235-173. This legislation would provide a 20-percent tax cut to companies employing 499 or fewer employees during either calendar year 2010 or 2011. The way this works is that any business – without regard to revenues – would be given a tax deduction equal to 20 percent of that business’ net income. For example, a business having 400 employees in 2011 with a net income of $20 million would get a deduction of $4 million; a business having 5 employees in 2011 with a net income of $10,000 would get a deduction of $2,000.

Some have criticized this House tax cut approach which employs only one “trigger” to activate the tax cut, the number of employees, i.e., 499 or less. For example, law firms and medical practices with high net incomes would be lumped together with tech startups and “mom and pop” retail, which might have minimal or no net income; all would receive the 20-percent deduction. Because this bill passed largely along party lines, there is little hope that the Senate will take up this legislation; also, the White House has threatened a veto.

Compare this House legislation to S. 2230 “Paying a Fair Share Act of 2012.” This Senate bill received a partisan Democrat majority of 51-45 earlier this week – failing the 60-vote threshold required to avoid a filibuster. S. 2230 would have placed a minimum 30-percent federal tax rate on taxpayers with incomes greater than $1 million. This Senate bill, like the House “Small Business Tax Cut Act”, was largely partisan – having little chance of passing in the House.

While neither of these bills was ever considered to be ultimately viable, each chamber pushed through a vote to underscore their partisan agendas as part of their broader messaging around this week’s tax filing date. Passing legislation that is destined to fail misses the point. Instead, we call on Congress to work together to craft legitimate tax reform and tax simplification for our small businesses. Our tax code is too complicated and costly for many small businesses, and everyone knows this.