A Republican proposal to give small businesses an extra 20% tax deduction might yield cuts for some multibillion-dollar hedge funds and other enterprises that create significant profits with few employees.
Rep. Eric Cantor, R-Va., told House members in a memo last month that his plan would let “every” business with fewer than 500 employees deduct 20% of its profits.
That approach would depart from restrictions in an earlier version. Legislation introduced when Republicans were campaigning to take over the House majority in 2010 would have prevented companies in health, law, finance, architecture and other industries from qualifying for the break.
Abandoning those limits would make hedge funds including Renaissance Technologies, Paulson & Co. and Och-Ziff Capital Management Group eligible to claim the tax break.
“It’s never simple with tax policy,” said Rep. Dave Camp, R-Mich., chairman of the House Ways and Means Committee. Mr. Camp added the latest version of the proposal hasn’t been completed.
Republicans hope to release details of the bill the week of March 19, said Laena Fallon, a spokeswoman for Mr. Cantor.
The deduction proposal was part of Republicans’ 2009 alternative to the Democrats’ economic stimulus, and in 2010 it became part of House Republicans’ campaign agenda.
The small-business tax cut hasn’t advanced. Republicans want to pass it before the April 17 tax filing deadline for individuals.
According to 2008 figures from the U.S. Census Bureau, of the 5.9 million companies that weren’t sole proprietorships, 18,469, or 0.3%, had 500 or more workers.
Och-Ziff had 434 employees as of Dec. 31, according to the fund’s website. Renaissance reports having 275 employees. In its 2011 year-end letter to investors, Paulson said it had 120 employees.
Steve Hinkson, a spokesman for the hedge fund trade group Managed Funds Association, declined to comment on the plan because details aren’t available.
