As the focus in Washington shifts to tax reform, many in Congress are preparing for a long battle pitting those who support lower taxes for growth against those that will insist on cutting spending to help offset decreased potential tax revenues. The debate is likely to continue for the foreseeable future. But a Democrat and a Republican want to see small businesses get some tax reform sooner rather than later.
The Hill reports that Senators Bill Nelson, a Democrat from Florida, and Republican Susan Collins (Maine) are pushing through tax reform legislation aimed at small businesses and first introduced in the House by Rep. Vern Buchanan (R-Fla.). The legislation, called the Main Street Fairness Act, aims to ensure that small business owners like me don’t pay more taxes than big corporations.
The current corporate tax rate is 35 percent. However, most small businesses – like my own – file S Corporation tax returns. On an S Corporation return, my company’s profits flow through to my personal income tax return where it’s combined with my and my wife’s other income and then taxed at individual rates. Those rates are as high as 39.6 percent. The Main Street Fairness Act would limit my top tax rate on my company’s earnings to the 35 percent corporate rate.
That’s a big thing, because any savings to my bottom line either gets re-invested in my business (translation: jobs), saved or distributed to me and then spent on consumer items. All of this is good for the economy.
“Small businesses are the cornerstone of our local economies, and this bill is just one way we can help them succeed,” Nelson said in a news release.
If tax reform does manage to happen in 2017 it could mean a corporate rate as low as 15 or 20 percent, and with this legislation the tax savings for many small business owners would be substantial. But we know in Washington that’s easier said than done. Even if there’s a delay in comprehensive tax reform, let’s hope Congress at least finds a way to get this legislation to the president’s desk for signing. It could be a great early start to something much, much bigger.