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US Bill Would Guarantee Small Businesses Equivalent Tax Cuts

by Mike Godfrey, Tax-News.com, Washington

28 April 2016


Vern Buchanan (R – Florida), a senior member of the House of Representatives Ways and Means Committee, has introduced the Main Street Fairness Act to ensure that small businesses receive an equivalent tax rate cut in any future reform of corporate taxation.

The Main Street Fairness Act would establish that businesses filing taxes as pass-through income will never pay a higher rate than a C corporation - for example, if the US Congress drops the corporate tax rate to 25 percent, then that would also be the pass-through rate.

The profits of pass-through entities (such as sole proprietorships, partnerships, and S corporations, which account for over 90 percent of all businesses in the United States) are passed directly to their owners and are taxed on their individual tax returns.

Under current law, corporations pay a maximum tax rate of 35 percent, while small business owners pay up to 39.6 percent under the federal individual income tax code, on top of additional taxes on earnings and investments. These small businesses pay more than 50 percent of their income in taxes in some states.

"Local mom and pop stores and medium-sized businesses should not be burdened with a higher tax rate than multinational corporations with billions of dollars in earnings," said Buchanan. "America has the highest corporate tax rate in the developed world – and small businesses face even higher rates."

Buchanan's bill is co-sponsored by Charles Boustany (R – Louisiana), Chairman of the Ways and Means Tax Policy Subcommittee. "This Act simplifies the code for small businesses and gives them the confidence they need to invest and provide more jobs for American families," Boustany continued.

A number of business groups and organizations have expressed their support for the measure. Carolyn Lee, Senior Director for Tax Policy at the National Association of Manufacturers, stated that the bill is "a viable plan for reducing taxes on pass-through businesses that can be part of a larger tax reform effort."

Americans for Tax Reform President Grover Norquist added: "This important change helps ensure that businesses are on a level playing field for decades to come. A key goal of tax reform should be taxing businesses equally, not discriminating based on arbitrary laws."

TAGS: tax | investment | small business | business | proprietors | law | corporation tax | legislation | tax rates | United States | tax reform | individual income tax | Tax

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