Democrats Outline Their Federal Tax Reform Priorities—How Will They Affect Small Businesses?

As Connecting the Dots reported last week, Republican congressional leaders and the White House have outlined their principles for comprehensive federal tax reform. This past week, Democrats answered with their priorities.

Forty-five Senate Democrats asked for three things: that tax reform not be passed with a simple majority vote, that it be revenue neutral (i.e., tax cuts be offset with tax increases), and that it not cut taxes for “wealthy” individuals. Three Democrats did not sign the letter: Joe Donnelly (IN), Joe Manchin (WV), and Heidi Heitkamp (ND). MSCI’s partners at the S-Corp Association explained that these principles could mean few, or no, tax cuts for American small businesses. The association said:

“Our concern is that this push against rate reduction for high income individuals could end up hurting pass-through businesses, where Senate Democrats support cutting rates on the largest multinational companies, but oppose rate reduction for the successful S corporation down the street. Keep in mind, that large S corporations already pays higher marginal rates than do C corporations – 40-plus percent versus 35 percent – and also likely pays higher effective rates as well.  Our 2013 study on effective tax rates found that large S corporations pay the highest effective tax rate of any business type – 35 percent.”

Click here to read the S-Corp Association’s full analysis. Meanwhile, in remarks on the Senate floor last week, Finance Committee Chairman Orrin Hatch (R-UT) said he is committed to moving comprehensive tax reform through the committee process this fall.