House Majority Leader Eric Cantor’s proposal to give businesses a 20-percent tax deduction won approval in the U.S. House of Representatives this afternoon, though its future is uncertain with the warning of a possible veto from the White House.
It passed the Republican-dominated House 235-173.
Cantor's plan would apply to business with fewer than 500 employees, regardless of how they are organized, a framework that critics say could end up giving a tax break to professional sports teams and organizations run by wealthy celebrities.
Cantor, R-7th, says he based the 500-employee provision on the U.S. Small Business Administration’s definition of a small business.
He argues that his bill will help small businesses create jobs, and it has gained support among companies in his district as well as from Steve Forbes, who on Wednesday threw his support behind the plan.
“Our bill puts more money into the hands of small business owners so they can reinvest those funds to retain and create more jobs and grow their businesses, plain and simple,” Cantor said on the House floor today.
The legislation would allow businesses to reduce the amount of income they pay taxes on by 20 percent, leaving them to pay their regular tax rate on the remaining 80 percent. A deduction for any taxable year could not exceed 50 percent of certain wages.
Critics blasted the plan during debate, noting that some sole proprietorships, those that do not employ any wage employees, would not receive the tax benefit.
Rep. Sander M. Levin, D-Mich., said on the floor that the bill is the “antithesis of tax reform.”
The proposal’s cost is pegged at $46 billion, and recent analysis by the Urban Institute and Brookings Institution’s Tax Policy Center found that 49 percent of the bill’s benefits would go to taxpayers making more than $1 million per year.
Cantor’s office calls that study flawed, and points to different analyses that they say found that less than 20 percent of the benefit would go to taxpayers with adjusted gross income in excess of $1 million.
Despite success in the House, the Obama administration said this week that if the measure makes it to the president’s desk, senior advisors would recommend that he veto the bill.
“The president believes that small-business tax relief can promote hiring workers and increasing investment here at home,” the Office for Management and Budget said in a statement released this week. “H.R. 9, however, is not focused on cutting taxes for small businesses, but instead would provide tax cuts to the most fortunate.”