This week, the House Republican leadership is expected to bring up the “Small Business Tax Cut Act,” a bill to let most business owners deduct up to 20 percent of their business income in 2012 — a $46 billion tax cut. Despite the Mom-and-Pop label, it is designed so that nearly half of the tax cut would go to people with annual income over $1 million, and more than four-fifths would go to those making over $200,000, according to the Tax Policy Center. The bill’s proponents, led by Majority Leader Eric Cantor, say that lower taxes would lead to more hiring. But the economic reality is that employers, big and small, are hesitant to hire because of slow or uncertain demand for their products and services, not because of their tax burden. And companies would receive the tax cut even if they did not hire new workers — making it a windfall, not an incentive. The bill is predicated on an overly broad definition of “small business” — one with fewer than 500 employees, which can include multimillion-dollar partnerships and corporations. It is also based on a willful denial of the reality that small businesses are not the big job creators politicians often say they are. If “small” were set at 50 employees, small businesses would be credited with creating less than a third of the new jobs over the last 20 years. And many such jobs are soon lost as small businesses struggle or fail. The best way to encourage their success is with continued government spending to support demand and by building a well-regulated banking system that is not prone to the busts that devastate small businesses. As for the broader economy, the Congressional Budget Office analyzed 13 policies last year for their potential impact on economic growth and job creation in 2012 and 2013. The option of a business tax cut along the lines of the Cantor bill ranked next to last in bang for the buck. More effective options include fiscal aid to states and increased safety net spending, which create jobs by bolstering consumer demand — and which Republicans fiercely oppose. Another immediate step Congress could take to create demand and jobs would be for House Republicans to drop their objections and reauthorize the highway bill, at least for two years, as the Senate has done. That would help private-sector contractors and suppliers, as well as government workers, boosting local businesses in areas where jobs are created. Extending the research and development tax credit would also help some businesses, but Senate Republicans have blocked that. The business tax cut for not-so-small businesses will almost certainly pass the House. Senate Democrats have introduced a tax relief bill that is linked specifically to companies hiring new employees. They should stick with that. This doesn’t mean that the tax system doesn’t need fixing. It does. In the Senate this week, the Democratic leadership will make an argument for more fairness, by calling for a vote on the Buffett Rule. It would require the wealthiest taxpayers to pay at least 30 percent of their income in federal taxes and, in the process, raise some $47 billion over 10 years. Republican senators are expected to block the vote. When you mail your taxes this week, think about that.
