The new 25 percent tax rate proposed for “pass-through” business entities fails to benefit many small businesses, and serves as a notice that the House’s tax plan still needs work. Proposed on November 2, the House tax reform package (H.R. 1, the Tax Cuts and Jobs Act) cuts tax rates on part of pass-through business’ earned income from the top rate of 39.6 percent to 25 percent, according to the Wall Street Journal.
While this would be beneficial to many larger pass-throughs, it leaves too many small businesses behind. According to the proposed tax plan, only business owners with rates above 25 percent—over $260,000 earning for couples and more than $200,000 earning for singles—are eligible for this tax break. An estimated 10 million small business owners wouldn’t qualify to receive the tax cut because of their earnings, said Carolina Bruckner, a managing director at the Kogod Tax Policy Center, to the Wall Street Journal.
Pass-throughs account for a large percentage of small businesses, and their net income is taxed at the small business owner’s individual rate. This means that most service-providing professionals—like doctors, lawyers, accountants, and architects—wouldn’t meet that 25 percent rate, the Wall Street Journal found. Out of all businesses in the U.S., 99 percent are small businesses, and three quarters of them file as individuals, not as corporations.
“We are concerned that the pass-through provision does not help most small businesses,” said NFIB President and CEO Juanita Duggan in a statement. “The National Federation of Independent Business is unable to support the House tax reform plan in its current form.”
Small business owners already list tax complexity as one of their most pressing concerns. The details and restrictions relating to the pass-through rate structure would further complicate tax filing for small business owners. Any tax reform plan must simplify the tax system for small business, and lower rates so that small business owners can invest in themselves and their employees.
Small business accounts for half of the nation’s jobs and half of the GDP. So in order to stimulate the economy and job creation, reform must benefit with small business, not stifle its growth.
NFIB pledges to work with Chairman Brady to amend the tax reform plan for the advantage of small business. “We believe that tax reform should provide substantial relief to all small businesses, so they can reinvest their money, grow, and create jobs,” said Duggan.
For more information on the tax reform plan or how to get involved, visit NFIB.com/TaxReform.