What it means for small businesses as proposed small business tax increases are considered in Congress
If you’ve followed the news in Congress recently, you likely heard about the U.S. House debates last week over not just policy but timing to pass a budget resolution, bipartisan infrastructure deal, and partisan “human infrastructure” legislation. One important distinction as you follow the debate and its threat of tax hikes for small businesses: there are two major pieces of infrastructure legislation moving in Congress. First is the bipartisan infrastructure deal and second is the partisan “human infrastructure” legislation.
- The bipartisan infrastructure deal addresses physical infrastructure (roads, bridges, and rural broadband) – without direct tax increases on small business. While it does call for reclaiming unused COVID assistance funding and curtailing the Employee Retention Tax Credit one calendar quarter early, it does not increase business or income taxes. The Senate passed this bill Aug. 10. Its path forward in the House is hotly contested – and depending on who you talk to – its future is linked to the passage of partisan “human infrastructure” budget reconciliation legislation in the House that does contain significant business tax increases.
- Congressional Democrats would like to use budget resolution and reconciliation legislation to pass “human infrastructure” policies central to the Biden Administration’s “Build Back Better” agenda. We have not seen the text of the reconciliation bill but we expect it will include enhanced childcare subsidies, a new paid family leave program, clean energy incentives, affordable housing funds, and other Biden Administration priorities. The budget reconciliation bill’s new spending would be paid for through various proposed tax increases, including several that impact small businesses. The tax increases below were outlined in President Biden’s American Jobs Plan and American Families Plan earlier this year:
- Increase the corporate tax rate from 21% to 28%.
- Repeal stepped-up basis, hitting family-owned businesses and farms particularly hard. The repeal of stepped-up basis has been attempted before in the 1970s with very little success. It was ultimately repealed before it was implemented.
- Treat death as a recognition event for capital gains taxes (currently capital gains tax is only levied at point of sale).
- Increase the top capital gains rate from 23.8% to 43.4%. President Biden has also proposed this change would be retroactive to the date of announcement in the American Families Plan (April 28, 2021).
- Increase the top individual tax rate from 37% to 39.6% for individuals and passthrough businesses with over $452,700 in taxable income and $509,300 if filing jointly.
Separate from President Biden’s proposed tax increases, others in Congress have their own ideas targeting small businesses. The U.S. Senate Finance Committee Chairman Ron Wyden of Oregon has proposed capping the federal Small Business Deduction (Section 199A located on line 13 on the 2020 IRS form 1040) for businesses with qualified business income over $400,000.
The budget resolution votes from earlier this month were the first step towards unlocking an arcane Congressional process called “budget reconciliation”. “Budget reconciliation” is a process that allows the Senate to pass substantial legislation with a simple majority, instead of requiring 60 of its 100 votes to pass. Due to the rules governing the reconciliation process in the Senate, everything in this package must be tied to the budget.
As a small business owner, your members of Congress need to hear how these proposed tax increases would harm your business, staff, customers, and community. Please take a few minutes to tell Congress to protect small businesses from tax increases.
Key Dates To Follow
In the next few weeks, Congress will write and consider budget reconciliation legislation and proposed small business tax increases. Additionally, several major policy and funding deadlines will take place at the same time.
|9/6||Enhanced unemployment benefits expire||Committee markups begin.|
|9/9||U.S House Ways and Means Committee markup begins.|
|9/14 – 9/15||Tax provisions expected to be considered by the U.S. House Ways and Means Committee.|
|9/15||Tentative deadline for House Committees, meaning committees must deliver their final reconciliation bill text.|
|9/27||U.S. House expected to consider the Budget Reconciliation package by this date.|
|9/30||Government funding runs out. Federal highway program, National Flood Insurance Program, and Temporary Assistance for Needy Families authorizations expire. Increased benefits under Supplement Nutrition Assistance Program (SNAP) expire.|
|10/4||Budget Reconciliation bill expected to be considered on the U.S. Senate floor this week.|
|10/1 – 11/30||The Congressional Budget Office (CBO) estimates the U.S. Treasury Department will reach its Debt Limit in this time frame, meaning Congress will also need to move legislation to increase the nation’s debt limit soon.|