With party conventions just two months away, Congress appears to making its final legislative push before the general election blitz begins. Bills that advance two issues Grant Thornton has long championed – equal tax rates for businesses and reducing waste, fraud, and abuse in government agencies – are currently making their way through Congress. The Main Street Fairness Act
, introduced by Rep. Vern Buchanan (R-FL) in April, would close the tax rate differential between pass-through businesses and corporations. The Fraud Reduction and Data Analytics Act
, introduced by Sen. Tom Carper (D-DE) in the Senate and Rep. Mark Meadows (R-NC) in the House, sets out to improve and standardize the way federal agencies approach fraud prevention, and is awaiting passage in the House before it can make its way to the president’s desk.
Equal rates for businesses
Grant Thornton has long proposed a business equivalency rate
to ensure all business, regardless of how they’re organized, are taxed equally. The Main Street Fairness Act provides the framework to do just that.
The bill would ensure that the qualified business income (QBI) earned by a pass-through entity would be taxed at rates equivalent to income earned by a corporation. Under current law, the top marginal tax rate for corporations is 35%, while the top rate on individuals is 39.6% without accounting for self-employment tax or the additional tax under Section 1411 on net investment income.
Pass-throughs account for over 80% of U.S. businesses and 39% of U.S. business receipts. Leveling the playing field for them would free them to invest in their business and create jobs.
One such pass-through is a family-owned trucking company Grant Thornton works with. For a number reasons, including succession planning, the pass-through structure is ideal for both the business and its owners. However, the business competes directly with transportation companies organized as C-corporations and pays a higher tax rate as a result. Ultimately, this means it has less capital on hand than those competitors to train and hire new employees, upgrade its existing fleet of trucks, invest in time-saving and energy-efficient technologies, and grow the business. The Main Street Fairness Act hopes to close that gap.
So far, the legislation has ten cosponsors and has garnered the support of numerous business trade associations including the National Association of Manufacturers and the Florida Chamber of Commerce.
Reducing the risk of fraud
The Fraud Reduction and Data Analytics Act requires federal agencies to implement the risk management guidelines and practices detailed in the Government Accountability Office’s (GAO) July 2015 report, “A Framework for Managing Fraud Risks in Federal Programs
.” Both the legislation and report stemmed directly from work led by Global Public Sector Principal Greg Wallig for the Social Security Administration in 2015. If the bill passes, Grant Thornton will be the only professional services provider in the federal sector with direct qualifications supporting the fraud risk assessments mandated by it.
“Waste, fraud, and abuse within our government is certainly an issue worth addressing in a meaningful way,” said Wallig. “In fiscal year 2015 alone, the GAO calculated almost $140 billion in improper payments made by federal agencies. Over the past decade, total improper payments exceed $1 trillion. To properly combat this problem, however, we must be proactive and take steps to quell it from the onset.”
The GAO has outlined such steps, including establishing an organizational commitment and culture to reduce the risk of fraud, regularly assessing those risks, implementing specific controls, and evaluating and adapting to outcomes.
“Effective risk management requires a balance of the elements the GAO has put forth,” said Wallig. “They must all be present to be effective as a whole. This legislation makes a lot of sense. It tackles the problem holistically and requires agencies to tailor their approach to best fit their needs and the needs of their stakeholders.”
You have a voice in our legislative process
While both bills are not yet law, these recent developments speak to the power of being informed and engaging with your elected officials.
“Election years are always difficult for legislation,” said National Managing Principal of Public Policy Mary Moore Hamrick. “But the fact that we’ve been able to get movement on these key issues shows that members of Congress are always listening and willing to act. We must make sure that, as business leaders, we’re out there sharing our unique perspectives and making our voices heard.”
In case you missed it…
Washington National Tax Office Partner Mel Schwarz testified before House Small Business Subcommittee on Economic Growth, Tax and Capital Access in April. The hearing was about small business tax simplification and reform. View a recording