House of Representatives Proposes Corporate Tax Breaks
In the U.S. Congress, members of both parties are working together to reduce the corporate tax rate and simultaneously limit business tax breaks. The plan to cut business tax rates is getting strong opposition from U.S. businesses.
Reducing corporate tax cuts and the corporate tax rate is a complicated issue because millions of U.S. businesses do not pay taxes through the corporate system. These businesses are often referred to as “pass-throughs” because the income they receive is not taxed at the corporate level but rather passes through to their owners’ tax returns.
According to the Tax Policy Center in Washington, approximately a third of all U.S. business activity is currently conducted through pass-throughs. Pass-throughs account for almost 10% of adjusted gross income on individual tax returns.
A common misconception is that pass-throughs are mostly small businesses. In reality, some of the largest law and accounting firms, hedge funds, private-equity firms, and even some large manufacturers are pass-throughs. This means that tax breaks given to small businesses or pass-throughs amounts to a large amount of money, making it tougher to reduce the corporate tax rate.
The current approach to reducing tax rates and cuts focuses on the size of the business, potentially offering new tax breaks to only small businesses, and eliminating tax breaks for larger businesses in order to afford a lower corporate tax rate. While discussions regarding corporate tax cuts continue, lawmakers in both parties agree that they are too far apart on the issue of individual tax rates to reach any deal there. Therefore, individual taxes are likely to be left alone.
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