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Would Rep. Cantor’s “Job Creation” Tax Cut Create Jobs?

| By CBPP
House Majority Leader Eric Cantor describes his proposed business tax cut as “a small business jobs creation tax cut bill that goes right to the heart of job creation in our country,” but our new analysis explains why it would more likely provide a windfall for the wealthy than create many jobs.  Here’s the opening:
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Though billed as a measure to create jobs by aiding small businesses, House Majority Leader Eric Cantor’s (R-VA) proposal for a 20 percent tax deduction in 2012 for businesses with fewer than 500 employees would benefit many high-income taxpayers — including many affluent doctors, lawyers, and stockbrokers — while failing to generate the promised economic benefits.  The Urban-Brookings Tax Policy Center estimates that nearly half — 49 percent — of the $46 billion tax cut that the measure would provide would go to people with incomes over $1 million a year (see graph).

The Congressional Budget Office (CBO) rated this general approach as one of the least cost-effective ways that policymakers were considering to encourage growth or create jobs in a weak economy.  For one thing, the tax benefits would flow disproportionately to high-income people who would spend a relatively small share of their additional income; thus, CBO estimated that the deduction would generate just 0 to 20 cents in economic growth for every dollar in budgetary cost.  For another, firms would receive this tax break whether they hired new workers or not; thus, CBO estimated that in 2012 it would create one job or fewer per $1 million of budgetary cost.

Click here for the full report.