The House Ways and Means Committee today marked up a bill sponsored by House Majority Leader Eric Cantor (R-VA) that purports to give small businesses a 20 percent tax cut in order to spur hiring. We’ve already noted that the bill’s overly expansive definition of small business means super profitable hedge funds and law firms that don’t need additional employees would still receive a huge tax break.
And the bill’s problems certainly don’t end there. As Citizens for Tax Justice noted today, Cantor’s bill will also give hugely profitable operations like Oprah Winfrey’s production company and professional sports teams a big tax break:
While the legislation caps the amount of the deduction (at half of non-employee payroll), there is no limitation on the type or amount of income that business can have. So highly profitable operations like Oprah Winfrey’s production company or the Trump Tower Sales & Leasing office would both qualify for the deduction simply because they have fewer than 500 employees on payroll.
Who else would qualify? Professional sports teams (including teams owned by Mitt Romney’s friends) with their multi-million-dollar salaries to non-owner players. So would private equity firms, hedge funds, and other “small businesses” with income in the millions, or even billions, of dollars, along with most of the top law and lobbying firms inside the Beltway and elsewhere.
Adding insult to injury, many truly small businesses won’t qualify for the tax break because the cut is only available to businesses whose employees are non-owners. So a family business in which all the family members share ownership will get nothing at all, while Oprah’s production company walks away with a tax cut
This bill, like so many put forth by the GOP, fundamentally misunderstands the problems facing actual small businesses, which is that there’s no demand in the economy for their goods or services. Businesses simply have no reason to expand without the reasonable expectation of more customers, and giving an already profitable firm a big tax break won’t entice them to act any differently. As the chief economist for the conservative National Federation of Independent Business explained, “if you give a small business guy $20,000 he’ll say, ‘I could buy a new delivery truck but I have nobody to deliver to.’”
Instead, the GOP is hoping once again that its tax cut snake oil will have some effect. But as a new study released yesterday shows, “there’s no there there” when it comes to tax cuts promoting economic growth.