House Democrat Says Small Businesses Would Suffer Under Bush Tax Cut

By Jason Pierce | July 7, 2008 | 8:27 PM EDT

( - While most opponents of President George W. Bush's tax cut plan complain that it will benefit mostly the wealthy, one Democratic lawmaker takes the criticism one step further, arguing that small business owners, a group traditionally supportive of Republican policies, would take a beating as a result of the tax cut.

The bill to reduce marginal tax rates, the cornerstone of the Bush proposal, is slated for a vote in the U.S. House Thursday.

However, Rep. Nydia Velazquez, (D-N.Y.), the ranking Democrat on the U.S. House Small Business Committee, told reporters Wednesday small business owners will be charged more fees for government assistance and more interest for loans if the Bush plan becomes law.

"Not only do small businesses get zero tax breaks in the Bush plan, but they are being taxed to pay for tax cuts that go mainly to the wealthiest people in the nation," Velazquez said. "We will never allow small businesses to be held up as a sacrificial lamb of political expediency."

Velazquez said small businesses could end up paying $2,400 in new fees for an average loan, plus a higher interest rate on that loan. Also, $12 million in additional fees would be imposed on companies that use Small Business Development Centers, which provide management and technical assistance to current and prospective small business owners, according to Velazquez. Other programs that help minority-owned businesses and spur investment in low and moderate-income areas would also be eliminated, she said.

"The President said that under his tax plan, the average family would get $1,400 in tax relief, but not if that family is headed by a small business owner," Velazquez said. "Any potential tax relief they might hope for will be swallowed up by a new, high-cost loan. And for a small business owner, that is the margin between expanding a business or tumbling into bankruptcy."

Dan Blankenburg, a tax lobbyist for the National Federation of Independent Business, said he was "stunned" at Velazquez's criticism of the tax cut and claims she and other Democrats are scrambling for ways to defeat the bill.

"To say that cutting taxes won't allow people to save more money and start new businesses just doesn't make sense," he said. "I guess if I were opposed to [the tax cut plan], I would come up with some goofy reasons as to why cutting taxes would stop the formation of capital."

Blankenburg added that opponents of the bill might be linking two separate issues in order to make their point. Although, the Bush tax cut is the current issue before Congress, funding for programs such as the Small Business Development Centers will be allotted later in the year during the budget appropriations process.

"It is kind of a stretch to assume they are going to cut these kinds of programs, because the Congress is so tightly wound between Republicans and Democrats and the history over the past few years is to preserve programs," Blankenburg said. "To presume fees will be placed on small businesses because of budget cuts is premature because that may not happen."

Blankenburg also said that out of the 600,000 individual and small business owners his organization represents, most do not rely on SBDCs or other government agencies.

Blankenburg said the tax cut makes sense for small business leaders because more capital will be available for their companies to grow and added that even if the tax break yields only $4,000 to $5,000 on average, that is enough to accomplish the goals of small business owners.

"When you cut marginal rates, [small business owners] move down a tax bracket and have more money they can keep for their businesses," he said. "Some want to offer better health care plans to get better employees, or maybe pave a new parking lot to attract more customers, which improve business."

Blankenburg said most politicians speaking out against the tax cut do not have solid facts on their side and are simply trying to save political face.

"The plan is popular among small business owners and I guess I can understand where this kind of talk comes from," Blankenburg said. "But that is how American politics works."