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Tax Cut Hits New Hurdle

As Congress prepares to put together a smaller-than-expected tax package this week, a rift is developing between the CEOs of the nation’s largest corporations and the proprietors of smaller, family-owned businesses over the makeup of the final plan.

Big business wants tax writers to anchor the package with a $396 billion proposal to eliminate taxes on corporate dividends, while small business folks back a $147 billion plan to accelerate income tax cuts and boost a lucrative expensing provision.

Combined with other tax priorities, there is little chance that both proposals will fit into either the House or Senate bills, which lawmakers capped at $550 billion and $350 billion, respectively, before leaving town earlier this month.

“It should not come as a shock that sometimes there is an apparent split between big business and small business, though it probably appears a bit bigger than it is,” said Greg Casey, president of the pro-business BIPAC.

Still, the fight between businesses big and small presents yet another obstacle to the White House and Congressional Republicans as they seek to move the legislation to help revive the sluggish economy.

Already, House Republican leaders are upset with Senate Majority Leader Bill Frist (R-Tenn.) for agreeing with Finance Chairman Chuck Grassley (R-Iowa) to cap the tax cut at $350 billion.

Meanwhile, Senate Republicans face a feud among their own party leaders. Tax-cut champion Sen. Rick Santorum (R-Pa.) is furious with Sen. Don Nickles (R-Okla.) for accepting the reduced tax cut in exchange for approving a budget resolution in his first year as chairman of the Budget Committee. Santorum and Nickles are two possible contenders to replace Frist when he is expected to retire from the Senate in 2006.

Now comes word of the feud among different segments of the business community.

The industry fault lines emerged last week when House Ways and Means Chairman Bill Thomas (R-Calif.) floated a plan to exclude the expensing provision and the reduction in the top individual income tax rates, which most small-business owners pay.

As the details of the plan emerged, the nation’s small business lobby let it be known that they would have trouble supporting such a plan.

“If the growth package does not include provisions that create growth for small business — like the expensing provisions and the rate cuts — then it puts us in a position of not putting our full weight behind it,” said Dena Battle, a lobbyist for the National Federal of Independent Businesses.

Meanwhile, the Business Roundtable, which represents the nation’s largest businesses, remains steadfastly behind eliminating the dividend tax. “We continue to believe that the dividend reduction is the single most important element in terms of job creation,” said spokeswoman Johanna Schneider.

About five dozen Business Roundtable members met with Bush on April 10 to reinforce their support for the dividend proposal.

To be sure, the NFIB supports the dividend tax plan and will likely remain a supporter of the tax plan whatever the details.

But excluding its priorities could affect the level of its support for the plan. “There are lots of pieces of legislation that we think are good,” Battle said, “but that doesn’t mean that we are going to go all out for them.”

Jade West, a lobbyist with the National Association of Wholesale Distributors who organizes industry support for the legislation, said “there is no way that NFIB stays on this bill,” if it does not include the rate cut and expensing provisions.

As a result, she said, Big Business groups such as the Business Roundtable and U.S. Chamber of Commerce are working hard to keep provisions in the bill.

So far, the fight has played out behind the scenes. However, it is expected to spill into public view this week as both sides work to ensure that their proposals are included in the bills unveiled in the House and Senate.

Much of the wrangling could take place in the House, where Thomas is said to be leaning toward putting the popular small-business-backed provisions in a second tax bill that would be moved this fall.

“I just thought that that might be something that Members ought to discuss,” Thomas said before the recess. “[T]hose items that could attract 60 votes in the Senate might be likely candidates not to have to carry on a package that requires 51 votes.”

However, small businesses believe that Thomas’ plan will doom their priorities.

“Moving a standalone tax bill is next to impossible. They tend to Christmas-Tree,” Battle said, using the legislative lingo for popular bills that get hampered by being decked out with unrelated amendments.

The NFIB is just one of several business lobbies scrambling to ensure that their favored provisions remain in play when tax writers piece together a final bill from the remnants of the original $726 billion package.

“There is no question that this is the beginning of the proverbial trying to put 10 pounds of potatoes in a 5-pound sack,” said Dan Danner, the chief lobbyist for the NFIB.

Lobbyist for the high-tech industry back a provision that would allow larger businesses take advantage of some of the expensing writeoffs enjoyed by smaller businesses. They also back a measure that would allow companies to bring billions of dollars in capital equipment from overseas at reduced tax rates.

“We are already supportive of the core elements of the Bush administration plan,” said Ralph Hellman, a lobbyist for the Information Technology Industry Council. “But we have told them that there are a couple of more provisions that would make our enthusiasm that much more enthusiastic.”

Like the high-tech industry, tax lobbyists say businesses big and small will support the final version of the tax bill even if it does not include their favored provisions.

Conservative leader Grover Norquist, the president of Americans for Tax Reform, said, “Bush has said that you are going to have a tax cut every year, so if you are not in this year, you will be in next year — unless you are a jerk.”

Indeed, Darrell McKigney, the president of the Small Business Survival Committee, said “it’s not likely that we would come out and oppose the bill” if it does not include their wish list. “Any type of tax cut is going to help the economy,” he said.

As for the small business provisions, McKigney said, “We would expect to come back and fight for those things next year.”

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