No Tax Cuts Without Offsets

The House is set to move forward on legislation that would enact a tax cut for small businesses. The Small Business Tax Cut Act (HR 9) allows small businesses (businesses with less than 500 employees) to temporarily deduct 20 percent of their domestic business income in 2012 up to 50 percent of employee wages. JCT has estimated that the bill would cost $46 billion, with almost all of that coming in the next few years. The bill has already passed the Ways and Means Committee.

Despite the cost, the House seems to not be looking at offsets for the bill. As we have said repeatedly in the past, any new tax cuts or spending increases have to be paid for; failing to do so is part of what has led us into the fiscal situation we're in. There are many options to offset this measure, so there is no excuse for adding the $46 billion cost to deficits and debt, a move that would surely continue the narrative that lawmakers do not have control of the budget. 

A fitting way to offset the cost of a business tax cut would be through corporate base-broadening. Surely, if the House feels that cutting taxes for small businesses is important, they can find some narrowly targeted and distortionary tax preferences that they feel they can do without.

PAYGO is a very valuable principle and one that should be adhered to. The House should hold itself to that standard and offset the $46 billion cost, rather than perpetuating a lack of confidence in lawmakers' ability to responsibly manage the nation's finances. If it's not worth paying for, it's not worth doing.