Small-business concerns threaten GOP tax overhaul

Lindsey McPherson, CQ-Roll Call on

Published in Business News

WASHINGTON -- Concerns from rank-and-file Republicans about small-business provisions in the House GOP tax bill are emerging as the biggest threats to the legislation's passage in the chamber.

The specific concerns vary from the types of small businesses that will benefit from a reduced 25 percent tax rate to the amount of so-called pass-through income that will still be taxed at individual rates.

It's a trouble spot that GOP leaders and tax writers need to work through if they want to shore up votes for the bill, which they hope to bring to the floor next week. Republicans can lose no more than 22 votes (assuming full attendance) if they are to pass a bill without Democratic support.

Lawmakers covering a broad spectrum of the House GOP conference, including the hardline Freedom Caucus members, the Republican Study Committee conservatives and the Tuesday Group moderates, are pushing for changes to the small-business provisions before the bill reaches the floor.

"That's probably number one, the whole pass-through on the small businesses," RSC Chairman Mark Walker said Monday evening.

It's not just members who are objecting. Small-business groups, such as the National Federation of Independent Business, are opposed to the bill.

Under current law, small businesses organized as sole proprietorships, partnerships, limited liability companies, and S-corporations, known as pass-through entities, are taxed at the individual owner or shareholder level.

That means these owners are paying taxes on their business income at tax rates, which top out at 39.6 percent.

The GOP bill would create a 25 percent small-business tax rate that would apply to all passive investment income, such as interest, and to a portion of active income, including profits and salaries. The active income portion comes with limitations that tax writers have described as "guardrails" to prevent abuse of the reduced rate.

Owners and shareholders of pass-through entities have two options for calculating their tax rates for active income. One is to have 30 percent of such income taxed at the reduced rate while the remaining 70 percent would be subject to individual income tax rates.


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