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Tax Battle Brewing Over Small Businesses

Democrats Hope to Put Republicans on Defense

President Barack Obama’s to-do list might be stalled in Congress, but Senate Democratic leaders are hopeful at least one of the five items — a tax cut for small businesses — will find its way through the chamber in the next few weeks and put Republicans on defense.

The business tax cut bill pairs a 10 percent tax credit for new hires and increased salaries — up to $500,000 per business — with extending 100 percent expensing provisions on equipment purchases, which has been a priority for the business community and has previously been supported by the GOP.

And Democrats, as of now, plan to adopt the House Republican strategy of simply adding to the deficit rather than offering their typical fare of paying for tax cuts with a tax increase on the wealthy or on corporations. With no “poison pills,” the bill is just the kind of sugarplum that could be hard to oppose.

“It’s hard to see how Republicans could possibly defend blocking a tax cut for businesses,” a Senate Democratic leadership aide said. “Barring something unforeseen, it seems like within the next few weeks, President Obama could be batting a thousand in the Senate on his to-do list.”

Senate Republicans said they are happy to have a debate on taxes — although it’s not clear yet whether they will sign on to the bill.

Sen. Chuck Grassley (R-Iowa) stopped short of endorsing the bill last week in a brief interview but said that the expensing provisions would help the economy. He added that not paying for them would follow the GOP principle that extending tax relief should not have to be offset. Republicans, however, are generally more skeptical of targeted tax breaks such as the one for hiring workers, Grassley said.

Still, the twin olive branches of tax relief for businesses and not attaching it to a millionaire tax, the Buffett Rule or some other tax increase could help smooth the path for the bill.

Republican aides remained skeptical and said GOP Senators would want the opportunity to offer amendments and are pushing their own proposals, such as repealing the medical device tax in the health care law.

Republicans note that they already sent a letter to Senate Majority Leader Harry Reid (D-Nev.) urging him to avoid “the largest tax hike in history” by extending Bush-era tax cuts that expire at the end of this year.

“We can look at this small piece of legislation that you say is really important, but why don’t we be a good, responsible Congress and start having this debate now? … The problem is what everyone is worried about is heading into December,” a second senior Senate GOP aide said.

House Republicans have already passed a 20 percent tax cut for businesses with fewer than 500 employees, which the White House has threatened to veto because much of the benefits would go to millionaires regardless of whether they hire anyone or expand their business. Democrats have argued that the GOP proposal could actually encourage business owners to put off expenses to take advantage of the temporary tax cut, depressing demand.

But House Majority Leader Eric Cantor (R-Va.) has defended the House’s approach as one that will free up small businesses to expand, and he has rejected efforts to limit or target the tax break.

House Republican leadership aides note that the Senate has not yet passed a small-business tax cut, so talk of taking up the president’s idea or holding a conference is premature.

And House GOP leadership has criticized Obama’s plan, with Cantor earlier this month saying the president “wants to direct small businesses and how they commit their capital,” while “we believe that we ought to let the investors decide on how best to allocate their capital.”

The Virginia Republican was in his Congressional district Tuesday and appeared on Fox Business with a local small-business owner to promote H.R. 9, the 20 percent tax cut for small businesses.

“What it takes is lessening the burden from Washington and reducing taxes, which is why I have talked about a small-business tax cut,” Cantor said on the program.

Other Republicans compare the president’s plan to the Hiring Incentives to Restore Employment Act, which offered a payroll tax exemption and a business tax cut of up to $1,000 for new hires in 2010. But Republicans say it did not work.

“This item was crossed off the Democrats’ ‘to-do list’ in 2010,” said Michael Steel, spokesman for Speaker John Boehner (R-Ohio).

So if the president invokes the bully pulpit and encourages House lawmakers to pass his plan, he is likely to hear the retort that they already passed their own.

“I can see us trying to address and work in the same direction that he’s talking about, but I don’t see us necessarily taking up their legislation verbatim,” a House GOP leadership aide said. “At this point, it would be great if we could alleviate some of the pressure that small businesses feel, but I think our response to that is, ‘That’s why we encourage the Senate to take up H.R. 9.’”

The White House promises to keep pushing. Obama on Wednesday reiterated the call for his full to-do list, including provisions for mortgage refinancing, a Veterans Jobs Corps, ending tax breaks for companies that ship jobs overseas and instead giving them to companies that bring jobs back, and extending renewable energy tax breaks.

As he signed the Export-Import Bank bill, Obama said that his administration would continue to do what it could on its own to help the economy but that “it gets a whole lot easier if we get some help from Congress.”

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