Chicago Sun-Times

For small biz, a lot riding on tax reform

‘ Pass- through’ entities also may get a break from Trump

- Roger Yu @ ByRogerYu USA TODAY

There has been much talk from President Trump about lowering corporate tax rates. But where does that leave the smaller companies that employ nearly half of non- public sector American workers?

Trump and Republican lawmakers are in the midst of hammering out legislatio­n that would cut the U. S. corporate tax rate, now at 35% even though few corporatio­ns pay that rate thanks to loopholes and deductions.

From 2006 to 2012, at least twothirds of all corporatio­ns had no federal income tax liability, while 42% of large corporatio­ns — those with at least $ 10 million in assets — paid no federal income tax in 2012, the Government Accountabi­lity Office said last year. Meanwhile, non- farm small- business sole proprietor­ships pay an average effective tax rate of 15.1%, according to Quantria Strategies, a policy analysis firm.

But even with many companies already paying far less than the high end of corporate rates, tax reform proponents say cutting taxes and simplifyin­g the corporate tax code would boost American competitiv­eness.

“We have an incredible opportunit­y here,” says Joe Kennedy, senior fellow at Informatio­n Technology and Innovation Foundation. “If we don’t get reform, we’d lose a big opportunit­y for getting additional economic growth.”

That opportunit­y may not filter down so easily to many smaller enterprise­s. The priorities of the General Electrics and Boeings get the big headlines, but most small businesses, including sole proprietor­ship and other limited- liability entities such as partnershi­ps and socalled “S corporatio­ns,” don’t pay corporate income tax. Instead, they’re structured as “pass- through,” entities where business profits are taxed at individual income rates, which top out at 39.6%.

Small and midsized businesses ( SMBs) make up 99% of U. S. employer firms and nearly half of all private sector employment, the Small Business Administra­tion says.

“We’re not opposed to corporate tax reform, says Todd McCracken, president of the National Small Business Associatio­n. But “( small businesses) want to make sure their tax rate goes down as well.”

Trump has yet to announce a specific tax reform plan but has proposed reducing the corporate income tax rate, not including pass- through businesses, “to anywhere from 15% to 20%.”

During his campaign, Trump also said pass- through businesses — the Trump Organizati­on is one — would have a top tax rate of 15%. Other key proposals include:

The Blueprint. A tax bill introduced by House Speaker Paul Ryan, R-Wis., and House Ways and Means Committee Chairman Kevin Brady, R– Texas, would lower the corporate tax rate to 20% from 35% and reduce the rate on pass- through businesses to 25%. The Bring Small Businesses Back Tax Reform Act. Introduced by Reps. Rand Hultgren, R- Ill., and Jason Smith, R- Mo., this month, the bill envisions a bigger cut for pass- through businesses than Ryan’s plan. It would lower the tax rate on the first $ 150,000 of small- business income to 12% and to 25% for all income above the threshold.

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