A Republican tax-cut plan due to be unveiled on Wednesday is expected to call for a new rate for “pass-through” businesses of about 25 percent, which would bring huge tax savings to millions of U.S. business owners, a lobbyist familiar with the negotiations said.
About 95 percent of American businesses are pass-throughs such as sole proprietorships, partnerships and S-corporations, according to the Brookings Institution, a Washington think tank. The name comes from the profits and losses of such businesses that pass through directly to their owners, unlike public corporations.
Pass-through profits are now taxed at top individual income- tax rates as high as 39.6 percent, higher than the top corporate income tax rate of 35 percent – a disparity that pass-through business owners have long complained about.
President Donald Trump is slated to travel to Indiana on Wednesday and unveil a tax “framework” that has been in the works for more than eight months, meant to move toward fulfilling his 2016 campaign promise of tax reform.
“These details will include specific proposed rates for individuals, small businesses, and corporations, and he will also discuss the elimination of loopholes that have rigged the current taxcode in favor of the wealthy and well-connected,” White House spokeswoman Sarah Sanders told a Monday press briefing.
The Republican framework is also expected to call for cutting the corporate income tax rate to a target range of 18 to 23 percent, down from the current rate of 35 percent, sources familiar with the negotiations said.
Negotiators had considered refraining from cutting the top individual tax rate of 39.6 percent, in a risky step that many Republicans in the House of Representatives could find hard to swallow, but recent reports have said a cut may be included.
Representative Kevin Brady, chairman of the House tax-writing committee and a member of the negotiating team of senior Trump aides and Republican lawmakers, declined on Monday to reveal specific rates or other details ahead of the framework’s release.
Lobbyists said they did not expect the framework to offer many details about eliminating taxloopholes and deductions or on how to raise new federal revenue to offset the proposed tax cuts.
To offset lost revenue, the Trump administration is expected to forecast economic growth in coming years that would generate new tax revenue at a more aggressive level than most economists are predicting.
But Senate Republicans have shown signs of moving away from using such “dynamic” scoring to assess tax legislation impact, which could mean the plan could balloon the federal budget deficit, alarming fiscal hawks.