ACCA raised our concerns with the Senate leadership, and the Senate Finance Committee about the treatment of pass-through businesses in the House tax reform proposal, which passed the House of Representatives on November 16. The House tax reform proposal and lowered the rates on pass-through businesses to 25 percent, but only 30 percent of the income would be taxed at that rate. The other 70 percent would be subject to the normal income tax rates. Alternatively, a pass-through business could go through a complicated formula that adds complexity to a proposal that is being sold as tax simplification. Read my earlier blog if you want to read a more detailed analysis of this formula in the House tax reform bill.
The Senate treatment of pass-throughs is very different than the House. The Senate legislation would continue taxing pass-throughs at normal income tax rates, but provide a 17.4 percent deduction for qualified pass-through income. Some businesses would be excluded from this deduction, but details on that are still being worked out.
Neither of these proposals are as good as the corporate tax cut that the largest businesses in the country would receive. ACCA is pushing Congress to provide more relief for small business owners who are the drivers of the U.S. economy.
The Senate is expected (as of Nov. 29) to vote on their proposal this week. Check back soon for additional analysis of how tax reform will affect your bottom line.