Tax Cuts for the Wealthy Would Do Little to Help Small Businesses and the Economy
Testimony of Chye-Ching Huang, Deputy Director, Federal Tax Policy, Center on Budget and Policy Priorities, Before the Committee on Ways and Means, Subcommittee on Tax Policy, U.S. House of Representatives
End Notes
[1] Jeffrey Rohaly, Joseph Rosenberg, and Eric Toder, “Options to Reduce the Taxation of Pass-Through Income,” TPC, May 16, 2017, http://tpc.io/2qoxsmJ. Also see Chuck Marr, Chye-Ching Huang, Brandon DeBot, and Guillermo Herrera, “Trump Tax Plan’s Pass-Through Tax Break Would Provide Massive Windfall to the Wealthy,” CBPP, May 22, 2017, http://bit.ly/2v7SoQ0 for description of TPC estimates.
[2] Frank Sammartino, “Taxation of Pass-Through Businesses,” TPC, January 30, 2017, http://tpc.io/2t9hyfN.
[3] Joint Committee on Taxation tabulations using IRS Statistics of Income data. See Tables 4 and 5 in Joint Committee on Taxation, “Background on Business Tax Reform,” April 22, 2016, http://bit.ly/2uMaA25.
[4] Marr, Huang, DeBot, and Herrera.
[5] Sheri A. Dillon and William F. Nelson, “Re: Status of U.S. federal income tax returns,” Morgan, Lewis & Bockius LLP, March 7, 2016, http://bit.ly/2sZZoBU.
[6] See Box 2 in Marr, Huang, DeBot, and Herrera, and Joseph Henchman, “Kansas May Drop Pass-Through Exclusion After Revenue Projections Miss Mark Again,” Tax Foundation, April 30, 2015, http://bit.ly/2u96p2L.
[7] Brandon DeBot, Emily Horton, and Chuck Marr, “Trump Budget Continues Multi-Year Assault on IRS Funding Despite Mnuchin’s Call for More Resources,” CBPP, March 16, 2017, http://bit.ly/2npTvYb.
[8] Similarly, a Treasury analysis of small business owners — more narrowly defined — in 2010 shows 67 percent already face rates of 15 percent or lower. These estimates define a small business owner as someone deriving at least 25 percent of his or her adjusted gross income from a small business. They define a small business as one with at least $5,000 in deductions for activities considered “businesslike” (such as expenses related to employees, inventories, office supplies, and rent) and income and deductions of less than $10 million. Matthew Knittel et al., “Methodology to Identify Small Businesses and Their Owners,” Office of Tax Analysis Department of the Treasury, Technical Paper 4, August 2011, Table 17, http://bit.ly/2v7G7Ly.
[9] For new investments, pass-through businesses would face marginal effective tax rates of 2.6 and 2.5 percent under the Trump campaign tax plan and House GOP proposal, respectively, according to TPC. In comparison, C corporations would face marginal effective tax rates of 9.5 and 8.8 percent under these plans, respectively. See James R. Nunns, Leonard E. Burman, Jeffrey Rohaly, and Joseph Rosenberg, “An Analysis of Donald Trump’s Revised Tax Plan,” TPC, October 18, 2016, http://tpc.io/2f5xYjZ ; and James R. Nunns, Leonard E. Burman, Jeffrey Rohaly, Joseph Rosenberg, and Benjamin R. Page, “Dynamic Analysis of the House GOP Tax Plan: An Update,” TPC, June 30, 2017, http://tpc.io/2uKUhlt.
[10] CBPP, ““Territorial Tax” Is a Zero Rate on U.S. Multinationals’ Foreign Profits, Threatens U.S. Revenues and Wages,” May 16, 2017, http://bit.ly/2uNwJx6.
[11] TPC table T16-0277, http://tpc.io/2t9BwHd. TPC defines a small business or small farm estate as one for which farm and business assets are at least half of gross estate and these assets total no more than $5 million. Similarly, the Department of Agriculture (USDA) finds that only about 0.4 percent of all farm estates face the tax. This figure includes estates that may not have accumulated the bulk of their assets or income from farming activity. For more details, see USDA, Economic Research Service, “Federal Estate Taxes,” updated March 15, 2017, http://bit.ly/2tE9mHN.
[12] David Cay Johnston, “Talk of Lost Farms Reflects Muddle of Estate Tax Debate,” New York Times, April 8, 2001, http://nyti.ms/1Of3vvD.
[13] Congressional Budget Office (CBO), “Effects of the Federal Estate Tax on Farms and Small Businesses,” July 2005, https://www.cbo.gov/publication/16897.
[14] Other provisions that further reduce estate tax requirements on the very few farms and small businesses that are large enough to face it include the ability to value farmland for the purposes of calculating the estate tax based on its value as a farm (rather than at the land’s fair market value, which may be higher because the land could be more valuable if used for something other than farming), minority and marketability discounts, and easement donation rules. See Gillian Brunet and Chye-Ching Huang, “Unlimited Estate Tax Exemption for Farm Estates Is Unnecessary and Likely Harmful,” CBPP, June 29, 2010, http://bit.ly/2sLgVcX.
[15] JCT analyses of H.R. 1105, the “Death Tax Repeal Act of 2015,” at http://bit.ly/2u91aQu and http://bit.ly/1HeVtzH. The bill was reintroduced in 2017 as H.R. 631 and S. 205, both titled the “Death Tax Repeal Act of 2017.”
[16] Jason DeBacker, Bradley T. Heim, Shanthi P. Ramnath, and Justin M. Ross, “The Impact of State Taxes on Pass-Through Businesses: Evidence from the 2012 Kansas Income Tax Reform,” July 2016, http://bit.ly/2tDUfOG.
[17] Don Hineman, “Rep. Don Hineman: Why tax reform was necessary,” Topeka Capital-Journal, updated July 5, 2017, http://bit.ly/2udIJLv.
[18] Brian Lowry and Scott Canon, “Kansas tax ‘experiment’ offers lessons to the nation, analysts say,” Kansas City Star, June 7, 2017, http://bit.ly/2t09Sg9.
[19] CBPP analysis based on Page, “Dynamic Analysis of the House GOP Tax Plan: An Update.” See Isaac Shapiro, Chye-Ching Huang, and Richard Kogan, “House GOP Framework Would Give Millionaires $2.6 Trillion in Tax Cuts, While Cutting Programs for Low- and Moderate-Income People by $3.7 Trillion,” CBPP, September 29, 2016, http://bit.ly/2deCtbe.
[20] Ibid. TPC has not done a macroeconomic analysis of the Trump Administration tax plan, but found that the Trump campaign tax plan would reduce growth by the end of the decade: see James R. Nunns et al., “An Analysis of Donald Trump’s Revised Tax Plan,” TPC, October 18, 2016, http://tpc.io/2f5xYjZ.
[21] CBPP, “Trump Budget’s Radical, Harmful Priorities,” May 26, 2017, http://bit.ly/2s45IDr.
[22] CBPP, “Tax Reform Should Raise Revenues — And Certainly Not Lose Them,” April 26, 2017, http://bit.ly/2oSQfoB.
[23] See CBPP, “Trump Budget’s Radical, Harmful Priorities,” and also Joel Friedman, “Black’s Lopsided Budget Is a Dead End for Appropriations,” CBPP, June 26, 2017, http://bit.ly/2u9qKVr.
[24] Sharon Parrott, “Contrary to Rhetoric, Trump Budget Would Make It Harder for Many to Climb Economic Ladder,” CBPP, May 31, 2017, http://bit.ly/2sLDbmU.
[25] Jacob Leibenluft, “Trump’s Bait and Switch on Infrastructure,” CBPP, June 7, 2017, http://bit.ly/2tJs5QM.
[26] Adam Looney and Kathryn Martin, “One in Five 2014 Marketplace Consumers was a Small Business Owner or Self-Employed,” U.S. Department of Treasury, January 12, 2017, http://bit.ly/2lFdQa7.
[27] Figure 1 in Richard Frank, testimony to U.S. Senate Committee on Small Business and Entrepreneurship, “Impact of the ACA on Small Business,” May 18, 2016, http://bit.ly/2u4h7b8.
[28] Aviva Aron-Dine and Tara Straw, “Senate Bill Still Cuts Tax Credits, Increases Premiums and Deductibles for Marketplace Consumers,” CBPP, updated June 25, 2017, http://bit.ly/2sBCkaO.
[29] Linda Blumberg, Sabrina Corlette, and Kevin Lucia, “The Affordable Care Act: Improving Incentives for Entrepreneurship and Self-Employment,” Urban Institute, May 2013, http://urbn.is/2sOhjrV.
[30] Sarah Lueck, “If Senate Republican Health Bill Weakens Essential Health Benefits Standards, It Would Harm People with Pre-Existing Conditions,” CBPP, June 12, 2017, http://bit.ly/2tJi45W.
[31] Jennifer Steinhauer, “From Maine, a Call for a More Measured Take on Health Care,” New York Times, June 4, 2017, http://nyti.ms/2rCpUNP.
[32] The bills also repeal the tax credit that helps businesses with fewer than 25 employees afford premiums for their employees. For more on the tax cuts for drug and insurance companies and high-income individuals, see Chye-Ching Huang and Brandon DeBot, “House Health Bill: Tax Cuts for Wealthy, Insurers, and Drug Companies Paid for by Low-and Middle-Income Families,” CBPP, updated May 22, 2017, http://bit.ly/2qSmqZe.