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Small Business Tax Cuts on Debate in DC

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Democrats versus Republicans: which party’s tax plan is better? Over the past few weeks, Democrats and Republicans alike have proposed different tax cuts, which are supposedly meant to help small businesses. As tax season sneaks up on small businesses all over the country, the two major parties are trying to woo small businesses and their believers. “Small businesses have always been the backbone of the US economy,” writes Jeff Stibel, the CEO of Dun & Bradstreet Credibility Corp. (Sound familiar? That’s where small businesses get their DUNS numbers.) As such, a boost for small businesses means a boost for the economy.

But small businesses shouldn’t count their chickens just yet. If we look a little closer, some of these tax cuts might not even help small businesses at all. As election season kicks off and small businesses start looking toward the future, here is a head-to-head look at each party’s proposed small business tax cuts.

Small Business Tax Cuts on Debate in DC

The Democrat Plan
On March 26, 2012, the Democrats introduced the Small Business Jobs and Tax Relief Act of 2012. To help spur job creation, the act would create a 10 percent tax credit for payroll additions, which includes new hires and increased wages. Small businesses could receive a credit of up to $500,000. In 2011, small businesses were allowed to 100 percent of their investments for that year. This tax cut is scheduled to expire, but the new act would extend the deduction to another year. This bonus is meant as an incentive for small businesses to invest.

Riding on the coattails of the recently-passed JOBS act, this plan sounds appealing and would lead to a $26 billion tax cut. Hopefully that $26 billion will go straight to job growth and new investments as planned. However, that is a huge chunk of government funds, and so far the Democrats have not counterbalanced the cut with spending cuts or new revenue plans. Then again, neither have the Republicans, according to ABC News, and the right’s plan would reportedly cost $45.9 billion.

The Republican Plan
On March 21, 2012, the Republicans unveiled the Small Business Tax Cut Act, also known as H.R. 9. This legislation would enact a 20 percent tax cut off of federal income tax, for businesses with fewer than 500 employees. As the website says, this tax cut “goes straight to the bottom line.” However, the big question remains: whose bottom line?

While this act is clear-cut and would be easier for small businesses to claim, it has incited a lot of criticism. Research from the non-partisan Tax Policy Center found that 49 percent of these tax cuts would go to people with incomes over $1 million, reports Entrepeneur. This means that nearly half of $46 billion would go to some of the country’s richest people.

According to the Huffington Post, this “small business tax cut” would benefit companies owned by Oprah, Donald Trump, Paris Hilton and Tiger Woods. This act would even provide a 20 percent tax cut for Mitt Romney’s hedge fund, Bain Capital.

Which Plan is Better?
Both the Democrat and Republican plans for small business tax cuts have positive and negative attributes. In the short run, the Republican plan sounds like a good bet, as the Democrat plan may lead to more convoluted tax returns. However, in the long-term, small businesses may suffer more harm than good from the Republican plan. The Republican’s proposed tax cuts would actually inject billions of dollars into the big businesses that already squeeze small businesses out.

Whatever plan passes, Congress needs to get its act together. While small business confidence was on a slow rise, a recent survey by the National Federation for Independent Businesses suggests it is declining again. Small businesses need a real change, and they need it now.

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