January 23, 2017

Why Do We Care About Individual And Corporate Tax Rate Parity? Because 90 Percent Of Businesses Aren’t Corporations

The Metals Service Center Institute (MSCI) has been consistent in its advocacy for federal tax rate parity between businesses that pay federal income tax through both the corporate and individual rate structures. The U.S. House Committee on Ways and Means’ blueprint tax reform reduces federal income tax rates for businesses that pay through both systems, lowering the top corporate income tax rate to 20 percent and the top individual income tax rate to 25 percent. 

Why is this parity so important? 

In a new report, the Tax Foundation explains. According to the Tax Foundation, a nonpartisan, nonprofit organization, more than 90 percent of U.S. businesses are so-called “pass-through” businesses. This means that their income is reported on the business owners’ personal tax returns, so is taxed under the individual income tax. The Tax Foundation notes that these businesses earn more than half of all business income in the United States and “employ the majority of the private-sector workforce.” Lowering tax rates for corporations without cutting rates for pass-throughs, many of which are small businesses, would make these companies less competitive at home and abroad. 

Today, the top federal income tax rate on pass-through businesses is 43.4 percent. These businesses also face state and local income tax rates ranging up to 13.3 percent in income, which means that, in many states, pass-through businesses face marginal income tax rates that exceed 50 percent. The Tax Foundation concludes that, “As the tax reform debate moves forward in 2017, it will be important to consider the effects of reform on these [pass-through] businesses.” The Metals Service Center Institute couldn’t agree more, and will continue to fight for federal income tax rate parity. To learn more about MSCI’s agenda for federal tax reform, visit our advocacy agenda