WASHINGTON — The Senate on Thursday rejected rival Democratic and Republican plans for cutting taxes on businesses, with both parties refusing to yield ground in their election-year struggle over how best to spark the economy.
Each side said the other’s bill would not do enough to make a difference for struggling families and businesses looking for help. Underscoring the sharp partisan elbows being thrown as this November’s presidential and congressional elections draw near, they swapped charges that the other party was letting political goals trump real efforts to revive a job market that everyone agrees has been sputtering for too long.
Thursday’s showdown was a precursor to a much bigger battle already under way over renewing reductions in income tax rates, dividends and other levies on most taxpayers that will otherwise expire in January. President Obama and Democratic leaders want to let tax rates rise for households earning more than $250,000, while Republicans want everyone included when tax cuts are extended, a clash that pits Democrats’ tax fairness arguments against GOP claims that higher taxes on the rich thwart job creation.
The Democratic bill cutting business taxes was derailed 53-44, with Democrats falling seven votes short of the 60 they needed to overcome GOP procedural barriers. Minutes earlier, the GOP version was turned aside 73-24.
In an embarrassment to the Republican bill’s original author in the House, House Majority Leader Eric Cantor, R-Va., 21 Republican senators – nearly half – voted against it. Several Republicans said they were unhappy that the $46 billion measure was not paid for – meaning it would boost budget deficits – and that it complicated the tax code at a time when many lawmakers want to simplify it by erasing some tax breaks.
The Democratic bill would give tax credits of up to $500,000 this year to companies that enlarge their payrolls over 2011 levels. It would also let firms deduct the entire cost of some major equipment purchases this year under the tax code’s “bonus depreciation” rules, doubling the current 50 percent deduction available.
Democrats said the measure would create 990,000 jobs, citing a study they requested from a private consulting firm. The White House said 2 million companies that hire new workers or give raises would benefit.
Republicans said it wouldn’t go far enough, and have called for more dramatic legislation preventing income tax rates from rising in January on all earners and avoiding a steep increase in taxes on estates and businesses that family members inherit.
Overall, the Democrats’ measure had a 10-year price tag of $29 billion. It, too, would be paid for by making federal deficits even larger.
The GOP plan was approved by the Republican-run House in April. It would give 20 percent tax deductions this year to businesses with fewer than 500 workers – a figure that Census Bureau data shows covers more than 99 percent of all American firms.
On the other hand, companies with fewer than 500 workers employ just over half the nation’s 121 million workers, the census numbers showed. Republicans argue that cutting these firms’ taxes would free up more money to hire people.
Democrats said that because the GOP bill’s tax cuts were only based on the number of workers, many of the reductions would end up going to hedge funds and other profitable companies that don’t need tax relief at a time of huge federal deficits.