Conference Report Makes a Bad Tax Proposal Even Worse for Small Businesses

The conference report released today on the final tax reform bill shows congressional negotiators somehow managed to make a bad proposal even worse by reducing the paltry benefits to Main Street small businesses even further.

The final report lowers the deduction for pass-through income to 20 percent from the 23 percent that the U.S. Senate approved in its version of the tax plan. But regardless, 55 percent of the proposed pass-through reduction benefit still goes to the top 2.6 percent of firms—hedge funds, investment vehicles and lobbyists—not the local pizza shop. Indeed, the financial benefits to a pass-through entity making $500,000 are 20 times the benefits to a business making $75,000.

The major focus of the legislation is to slash corporate tax rates from 35 percent to 21 percent, even though only five percent of small businesses pay corporate taxes. Unfortunately, lawmakers have refused to understand that entrepreneurs overwhelmingly oppose lowering the corporate rate without getting rid of corporate tax loopholes that strongly favor large multinational corporations, such as the loophole that allows multinational corporations to defer paying taxes on foreign profits. In fact, Small Business Majority’s recent scientific opinion polling found seven in 10 small business owners believe their business is harmed when big corporations use loopholes to avoid taxes—specifically, 75 percent of small business owners believe large corporations should not be able to choose to declare some or all of their income in a foreign country in order to lower their taxes. What’s more, 85 percent of entrepreneurs feel the tax code unfairly benefits large corporations over small businesses, and that corporations and wealthy Americans should be required to pay their fair share of taxes.

Finally, the proposed legislation blows a $1.5 trillion hole in the deficit, with most studies showing that virtually none of the tax savings will be invested back into the economy. This creates a risk of higher interest rates and limits the ability of the federal government to fund programs that stimulate the economy and directly benefit our nation’s entrepreneurs.

As was the case with the bills passed by the U.S. House of Representatives and the U.S. Senate, this conference report does almost nothing to help small businesses. It does not substantially lower their tax burden and it does nothing to close the loopholes large corporations exploit. As a result, it does nothing to even the playing field for small firms, which should be the real goal of tax reform rather than simply handing out tax cuts. We hope this proposal does not advance any further, and that lawmakers start over in 2018 with a bipartisan measure that would actually help America’s job creators succeed.