Corporate-only tax reform misses 80% of U.S. businesses

Although Ways and Means Chairman Paul Ryan (R-WI) and the White House have acknowledged the importance of both corporate and individual tax reform, there is no guarantee that the latter will be addressed in the 114th Congress. Legislation limited to corporate reform would exclude pass-through entities, which represent an ever-growing share of the economy. If individual reform is not possible, Congress must focus on business reform, not just corporate reform in order to provide fair treatment for all businesses, both corporate and pass-through.

Pass-through graphicPartnerships, S corporations and sole proprietorships are called “pass-through” entities because their income is not taxed at the entity level, but instead is “passed through” and taxed at the individual level. Many of the dynamic U.S. companies that drive economic growth and job creation are organized as pass-throughs. There are compelling economic and business reasons for pass-through tax treatment. It should be preserved, and an equivalent rate structure for pass-through income should be re-established.

“Since 2013, pass-through entities have faced a higher marginal tax rate on their business income than their C corporation competitors,” says Randy Robason, Grant Thornton LLP national managing partner, Tax Services. “The top rate on individuals is 39.6%, while the top corporate rate remains at 35% — placing pass-throughs at a competitive disadvantage. Congress has an opportunity to level the playing field for all U.S. businesses regardless of their form. Simply put, a corporate tax cut doesn’t cut it. Congress must address business tax reform, not just corporate tax reform.”

Contact your elected officials in support of comprehensive tax reform and learn more about Grant Thornton’s business equivalency tax proposals. A fairer and simpler tax code will drive economic growth.