Republicans seeking 'carve out' for small business owners in budget talks

I doubt whether this will fly, for the simple reason the Democrats think they have the GOP on the run when they hear stuff like this.


Maine Republican Susan Collins and other GOP senators are toying with what they're calling a "carve-out" to benefit small businesses that pay their taxes through the individual side of the Tax Code.

A sort of GOP Plan B, a carve-out could give Republicans - and some red state Democrats - a way to save face if they're faced with a choice between allowing the government to go over the fiscal cliff or swallow some sort of marginal tax rate increases.

Collins, for her part, is reprising her proposal to impose a 2 percent surtax on the wealthiest earners, with a carve-out. But the concept could also apply to a broader marginal rate increase. The idea is to exempt those profits, from S-corporations, partnerships and other passthrough entities, from the income tax increases Obama wants for top earners.

But it's far from clear whether a carve-out would pass muster with the White House and congressional Democrats, whose official preference is a full expiration of the Bush-era rates for top earners. It would be messy and take a big chunk out of the revenue that Obama is seeking to generate from marginal rate hikes. It would also run into long-standing partisan divisions over what constitutes a "small business" - and how many of them, exactly, would be hurt by increasing upper-income tax rates.

But discussions reflect the difficult position Republicans face in the fiscal cliff talks, after an election in which Obama made the expiration of the top Bush-era tax rates a central rallying cry.

"It's more of a break-the-glass-type proposal if we can't get the deal we want to prevent the rates from going up," said one senior GOP aide who has talked with several Republican offices about the idea. "There's definitely been talks of this type of carve-out, but the hope still is that Obama and congressional Democrats will agree to the framework that Boehner and McConnell have laid out."

A "surcharge" is still a tax increase. You can't dress up a pig in a prom dress and think it doesn't look like a porker anymore. No one on the right is going to be fooled, and the Democrats - knowing full well they have the GOP over a barrell - will be in no mood to make things any easier for their opponents.

Either oppose the tax increase or give it your blessing. Trying to finesse the situation only makes Republicans look weak and disorganized.