Over 1 million small businesses – even the smallest C-corporations – would see a tax hike under the Biden Administration's American Jobs Plan
On March 31, 2021, President Biden released the American Jobs Plan, a sweeping proposal with many changes to the federal tax code, including an increase in the corporate tax rate from 21% to 28%.
While it may seem the corporate tax rate is reserved for massive companies, the reality is most businesses impacted by changes to the corporate tax rate – those businesses organized as C-corporations – are small. Of the 1.6 million registered C-corporations, over 1 million of them have business receipts below $500,000 a year.
This means that the Biden Administration’s proposal to increase the C-corporation (C-corp) tax rate, meant to increase tax revenue from large corporations, would actually be a blow to over a million small businesses.
An NFIB member and summer camp owner in Alabama recently shared his concerns about the proposed tax increase for his small C-corp. For the smallest C-corps like his – those with taxable income less than $50,000 – the Biden Administration’s proposal would deliver a staggering 87% tax increase relative to their 2017 tax rate.
Prior to the 2017 Tax Cuts and Jobs Act (TCJA), corporate taxation was based on a graduated rate scale. In other words, small businesses paid a lower tax rate than large corporations. The TCJA removed the graduated rate scale and instead taxed all corporate income at a flat 21%.
While this meant a drop in taxes for large corporations who previously paid 35% of their income in taxes, the smallest businesses were hurt with an increase. The first $50,000 of taxable income was taxed at 15% before the TCJA and 21% after, because all C-corp income is now taxed at 21%. This constituted a 40% increase on taxes for the smallest C-corps.
With the new proposed increase of the flat tax from 21% to 28%, taxes on these C-corps will be 87% higher than they were four years ago.
|
Taxable Income: |
Income Tax Rate Before the TCJA (Before FY 2018) |
Income Tax Rate After the TCJA (FY 2018-2021) |
Income Tax Rate If the American Jobs Plan Passes (FY 2022 Onwards) |
|
$0 – $50,000 |
15% of taxable income |
21% of taxable income |
28% of taxable income |
|
$50,001 – $75,000 |
25% of taxable income |
21% of taxable income |
28% of taxable income |
|
$75,001 – $10,000,000 |
34% of taxable income |
21% of taxable income |
28% of taxable income |
|
Over $10,000,000 |
35% of taxable income |
21% of taxable income |
28% of taxable income |
Despite making up about 30% of all C-corps, larger businesses – those with over $500,000 in business receipts – make up 98.6% of all the corporate tax revenue collected by the federal government. Small businesses by comparison, comprise nearly 70% of all C-corps but pay in only 1.4% of all corporate taxes.
President Biden promised that he would not increase taxes on American households that make less than $400,000 per year – yet these proposed changes would account for a huge increase in taxes to small businesses that make around that much per year.
NFIB opposes increasing any small business taxes. However, if President Biden and Congress proceed with increasing the corporate tax rate, then at minimum they should restore the graduated rate scale to minimize harm on the small businesses that can least afford it. Restoring the graduated rate scale would have little impact on tax revenues given the share of all corporate taxes paid by large vs. small businesses. Yet, it would protect small businesses from substantial tax increases, especially as they fight to recover from the pandemic.
Take Action: NFIB is advocating for small business owners in Washington, DC and we need your help to educate lawmakers on the real impacts of their proposals. Please complete our survey on how tax hikes would affect your business, or send us your tax concerns in a video today. You can also register to attend our Virtual Fly-In where we will be talking about taxes and ways to influence Congress. Learn more at NFIBflyin.com.
