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A tax conundrum: How tax reform could hurt main street businesses

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Today, nearly 90% of U.S. businesses are pass-through entities that pay taxes through the individual returns of their owners. So why are they taxed at a higher rate than other businesses?small town

While tax policy is never simple, current policymakers are facing a true conundrum when addressing tax reform. If they try to address just one anti-competitive tax policy, they might expand another one and hurt the U.S. economy in the process.

This Grant Thornton white paper addresses some of the core challenges related to pass-through tax reform including:

• Expanding the fairness gap
Would current tax reform proposals actually serve to widen the fairness gap for pass-through entities?

• Leveling the playing field
How can all types of businesses benefit from tax reform that doesn’t tilt the playing field in favor of U.S. corporations?

• Separating wages from business income

What’s the best way to establish a tax rate for profits on pass-throughs?

• Certification by an independent third party
Why is third-party certification the key to closing a potential wage-profit loophole and delivering a blended tax rate on business income — one that is on par with that paid by corporations?

Solutions to the pass-through tax reform issue clearly can be found in the hard details. Tax law must appropriately capture what is and isn’t business income from all pass-through entities and tax it at a uniform rate. Simultaneously, tax policy also needs to establish enforcement rules to reduce the ability of business owners to recategorize their wages as business income.

Download the white paper “A tax conundrum:  How tax reform could hurt main street businesses”

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