To amend the Internal Revenue Code of 1986 to provide a deduction for domestic business income of qualified small businesses. Read More


This bill was introduced in a previous session of Congress and was passed by the House on Apr 19, 2012 but was never passed by the Senate.

Bill Text


To amend the Internal Revenue Code of 1986 to provide a deduction for domestic business income of qualified small businesses.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,


This Act may be cited as the ``Small Business Tax Cut Act''.


(a) In General.--Part VI of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:


``(a) Allowance of Deduction.--In the case of a qualified small business, there shall be allowed as a deduction an amount equal to 20 percent of the lesser of-- ``(1) the qualified domestic business income of the taxpayer for the taxable year, or ``(2) taxable income (determined without regard to this section) for the taxable year. ``(b) Deduction Limited Based on Wages Paid.-- ``(1) In general.--The amount of the deduction allowable under subsection (a) for any taxable year shall not exceed 50 percent of the greater of-- ``(A) the W-2 wages of the taxpayer paid to non- owners, or ``(B) the sum of-- ``(i) the W-2 wages of the taxpayer paid to individuals who are non-owner family members of direct owners, plus ``(ii) any W-2 wages of the taxpayer paid to 10-percent-or-less direct owners. ``(2) Definitions related to ownership.--For purposes of this section-- ``(A) Non-owner.--The term `non-owner' means,...

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The Administration strongly opposes House passage of H.R. 9. The President believes that small business tax relief can promote hiring workers and increasing investment here at home. H.R. 9, however, is not focused on cutting taxes for small businesses, but instead would provide tax cuts to the most fortunate. Under the bill’s definition of income, many of the “small businesses” that would receive the largest tax breaks are law partners, consultants, and other wealthy individuals and corporations with the biggest profits. The proposal is a giveaway that will cost $46 billion and could,in fact, lead to delays and reductions in investment and hiring. While H.R. 9 has been described as a way to help small businesses, independent non-partisan analyses confirm that 49 percent of the bill’s benefits would go to taxpayers making more than $1 million per year. Individuals in higher tax brackets would be able to take the bill’s deduction against higher tax rates, making it more valuable for higher earners and more profitable firms. For the one percent of individuals with small business income in the top tax bracket and for profitable corporations, the deduction is worth more than double what it is worth to the two-thirds of small business owners in the 15 percent bracket or lower. Moreover, because “small business” is broadly defined and the tax relief is conditioned only on the size of payroll, many very large and highly profitable firms will be eligible for the tax break. The Administration believes that this bill is not an effective way to incentivize small business investment and job creation. Furthermore, under H.R. 9, small businesses that invested or hired more this year would, in many instances, get a smaller tax cut than those that did not, because the bill would have the deduction taken against the amount of a company’s net income from which wages for new workers or long-term investments in equipment are actually subtracted. With the deduction only available for one year, it is likely that some firms would reduce or delay new hiring or new investment as a result. The bill also opens up avenues for potential abuse, allowing a deduction for payments to family members who have been “hired” for the year as well as creating an incentive for firms to try to re-characterize current activities to earn the deduction. Congress should act to help American small businesses hire and grow with targeted tax relief designed to boost jobs, rather than tax cuts for the most fortunate that actually discourage investment. In both his Budget and his business tax reform framework, the President put forward an ambitious plan to simplify small business tax returns and provide tax relief — including targeted employer tax relief that conditions its benefit on actual new hiring, directly encouraging job growth. Those proposals build on the 17 small business tax cuts that the President has already signed into law, ranging from the small business health tax credit to more generous depreciation. The Administration believes that this legislation fails to accomplish these goals. If the President is presented with H.R. 9, his senior advisors would recommend that he veto the bill.

The Administration 3 years ago

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Bill Summary

To amend the Internal Revenue Code of 1986 to provide a deduction for domestic business income of qualified small businesses.

H.R. 8the Job Protection and Recession Prevention Act H.R. 10Regulations From the Executive in Need of Scrutiny (REINS) Act