The skirmish over the tax hiking “Buffett Rule” behind us (for the moment), the next line of sniping will be over Eric Cantor’s proposed 20 percent tax cut for small businesses. The House will vote on the measure tomorrow, and in advance of that vote, the majority leader has taken to the pages of the RTD to tout the bill’s job creating potential:
The Small Business Tax Cut Act will help 22 million small businesses across the country, including hundreds of thousands in Virginia — no matter how they are organized or whether they pay taxes at the corporate or individual level. A third of those small businesses are owned by women and one-fifth are minority-owned small businesses. This 20 percent tax cut will free up resources so small-business owners can invest in new technology, hire additional workers, or provide a raise to a current employee — something so many employers haven’t been able to do.
As I noted earlier in the week, the Democratic counter argument is that this break would further enrich the Kim Kardashians and Oprah Winfreys of the world and is thus evil. Instead, Democrats want to leave small business taxes alone and go after the tax breaks of multinationals.
That’s not news. But casting a shadow over all this cross-talk is that, come January 1st, the Bush-era tax cuts will expire. This means rates will go up for everyone, and it is cause for genuine concern. Writing in Politico, Steve Forbes reminds us just how bad things could be if those cuts are allowed to expire:
At the end of this year, there will be a convergence of events akin to an economic tsunami. The current tax rates are set to go up, the temporary payroll tax cut will expire, “Obamacare” taxes on capital are to kick in and the alternative minimum tax will most likely hammer tens of millions of middle-income Americans. These events could knock the economy into a tailspin.
But presumably, a lame duck Congress could, in a session lasting five weeks or so, avoid at least some of this. A thin reed, that.
In the interim, Cantor’s tax cut would provide at least some protection from the come tax increases. And according to a report by Gary Robbins of Fiscal Associates, the bill represents “a step in the right direction.” But what about the “cost” to government?
The cost of implementing Cantor’s Small Business Tax Cut Act is often incorrectly taken as the foregone revenue, typically using an incorrect static revenue estimate. This is highly misleading as the ultimate revenue cost generally is much smaller. Further, even this cost ignores the added output and income received by the private sector. Private citizens would receive $76.1 billion after taxes compared with an increase in total government borrowing of $17.7 billion. In other words, the private sector would gain $4.30 for every extra dollar not paid to government. Unless the return on another dollar of government spending is more than 4.3 times as efficient as what the private sector could do with that dollar, the
Cantor Plan is preferable.
In light of the other tax breaks set to expire at the beginning of next year, the private sector will need every dime of it, just to stay in place.
