Pass Through Loopholes? 

The pass through mantra, supported by more than 100 national business trade groups, is simple – tax business income once, tax it when its earned, tax it at the same reasonable top rate, and then leave it alone!

Do you want to stop inversions and keep American corporations here at home?  Adopt the mantra.  Do you want to make sure Main Street continues to be a source of job creation and economic stability?  Adopt the mantra.

We’ve been on this message for five years, and sometimes you get the sense it’s starting to sink in.  For example, the Brady blueprint released earlier this year was significantly improved over the Camp draft that preceded it.  Tax rates were lowered for pass throughs and C corporations alike, as was the cost of capital investment in the US.  That’s a good thing.

And then you have the last week.

First, the Center for American Progress issued a paper labeling pass through taxation a “loophole” and calling for double taxing all US businesses with more than $10 million in revenues.  Ouch.  Has CAP noticed that our best corporations are fleeing the US just to avoid the double tax?  So why would extending its reach to Main Street be a good idea?  See our response to the CAP paper below.

And then there’s this:

“We may end many of the loopholes that are currently being used,” Republican presidential nominee Donald Trump said on CNBC in response to question about the use of so-called passthroughs to lower tax rates.

Asked if it’s fair to say he wouldn’t allow passthroughs, Trump said, “We are looking at that very strongly.” More details are coming within two weeks, he said.

Just to be clear, the “loophole” Trump is referring to is different than the “loophole” CAP references.  CAP wants its readers to think the pass through structure itself is somehow a loophole because they pay different taxes than C corporations.  We address that bogus concern below.

Trump is referring to the challenge of taxing different forms of income at different rates and the opportunity for tax arbitrage that it creates.  As Trump advisor Steve Moore told Politico:

Stephen Moore, one of Trump’s economic advisers, made it clear to Bloomberg and to Morning Tax that the campaign is committed to stopping high-earning individuals from gaming that system. But he added: “All I’ve said is that there will be rules, to make sure that the business income that’s declared is actually business income and not wage and salary income in disguise. How you do that is beyond my pay grade. I’m not a tax lawyer.”

Trump suggested to CNBC that his campaign could roll out those rules within two weeks. But Moore told Morning Tax not to hold our breath: “I doubt it. This is a presidential campaign. This isn’t a Ways and Means markup.”

Mr. Moore is exactly right.  This issue has been around for a long time and it’s not going to be resolved in the next two weeks.  It’s also a reminder that the best tax reform would restore rate parity to all forms of income – individual, corporate, and pass through alike.  Anytime you tax different forms of active income at different rates, you run the risk of arbitrage.

That’s why the Pass-Through Principles letter says, “To ensure that tax reform results in a simpler, fairer and more competitive tax code, Congress needs to reduce the top tax rates to similar levels for all taxpayers.”

Of course, CAP and its allies oppose lowering individual rates, which has created the problem in the first place.  How do you make US businesses more competitive without lowering tax rates on individuals?  It’s not easy, but we know one thing for certain – you don’t make them more competitive by forcing them all into the double tax.

Pass Through Response to CAP

As noted above, the Center for American Progress (CAP) released a paper this week calling for imposing a double tax on all US businesses with more than $10 million in revenues.  The paper has innumerable flaws, but it essentially makes three basic points worth reviewing:

  1. Pass through businesses contribute to income inequality;
  2. Pass through businesses are “lightly” taxed and cost the government $100 billion a year in lost revenues; and
  3. All US businesses above $10 million in revenues should pay the double corporate tax.

You’ll notice that points one and two are merely a rehash of last year’s study by a number of Treasury and NBER economists (Treasury) on effective tax rates for businesses.  That study too was deeply flawed.  You can read our initial critiques here and here, and we build on those concerns below.

Point three, on the other hand, is totally new territory.  CAP would extend the harmful double tax currently imposed on C corporations and apply it to all businesses over $10 million in revenues.

CAP makes no attempt to defend this position on economic grounds, and for good reason.  The corporate double tax is widely understood to reduce domestic business investment, lower wages and job creation, and generally encourage the migration of businesses from the US to other countries.  Here’s our 2011 EY study on the topic:

The double tax is economically important and can distort a number of business decisions. One important such distortion arises because the double tax mainly affects business income generated by activities financed through equity capital within the C corporation form. Interest expenses are generally deductible by businesses, leading to a tax bias in favor of financing with debt rather than equity. The double tax thus raises the cost of equity financed investment by C corporations relative to debt financed investment and provides an incentive for leverage and borrowing rather than for equity-financed investment. Accordingly, the double tax contributes to the tax bias for higher leverage. Greater leverage can make corporations more susceptible to financial distress during times of economic weakness.

The double tax also increases the cost of investment in the corporate sector relative to the rest of the economy. This tax bias against investment in the corporate sector leads to a misallocation of capital throughout the economy whereby capital is not allocated to its best and highest use based on economic considerations. This reduces the productive capacity of the capital stock and dampens economic growth. As noted before, the diversity of organizational forms can be seen as a useful choice for businesses to make in organizing themselves, but the impact of differential treatment should be recognized. Finally, the double tax raises the overall cost of capital in the economy, which reduces capital formation and, ultimately, living standards.

Reformers might disagree on what the top business tax rate should be, but very few tax experts openly advocate for expanding the double tax.  So in this instance, CAP is making itself an outlier in the tax discussion and an advocate for fewer jobs and less investment here in the United States.  Not the place to be.

Treasury “Findings” Exaggerated

CAP writes that the Treasury study “implies that the growth of these lightly taxed pass-through businesses cost the federal government $100 billion in 2011.”  Notice the use of the weasel word “implies”?  CAP had to insert that word because the Treasury study explicitly does NOT find that the growth of the pass through sector has cost the government revenue.

This nuance was lost on the tax reporters at BNA, who dutifully reported that “The growth of passthroughs cost the U.S. $100 billion in lost tax revenue in 2011, according to a Center for American Progress report released Aug. 10.”  But Treasury never says that!  Here’s what the Treasury study says:

We find that allocating partnership income to traditional businesses results in an average tax rate on business income of 28.1%, which exceeds the average tax rate on business income of 24.3% in 2011 by 3.8 percentage points. Since the pass-through sector earned $1.1 trillion in business income in 2011, an additional 3.8 percentage points on the tax rate would have generated 97 billion more dollars in business tax revenue, which would amount to an approximately 15.5% increase in tax revenues from business income on an annual basis.

We stress that this exercise is not a projection for the likely effects on tax revenue from business tax reform. It is mechanical and assumes no behavioral responses, but has the advantage of being transparent. (Emphasis added)

Transparent?  Hardly.  BNA wasn’t the only news outlet to get the story wrong.  It is wholly misleading for Treasury to toss out this estimate and then say in effect, “Oh, just kidding.”

Treasury has to say “just kidding” because the whole exercise of taking 2011 pass through income and taxing it according to 1980 rules is ridiculous.  Which tax rates apply to the newly designated corporate income, those in force today or those from 1980?  What about the growth in the business tax base?  As we’ve noted in the past, business income today makes up 11 percent of our national income, while it was only 9 percent back in 1986 – that’s bigger and it’s the result of the shift in the taxation from the harmful double tax to the more efficient and competitive single layer pass through tax.  Did Treasury adjust tax collections back to 1980 levels to account for this growth?  No.

But are pass through businesses really taxed “lightly” as CAP so amusingly claims.  No.  There too, the Treasury estimates used by CAP have significant challenges.  Here’s a list of their problems:

  • Treasury uses 2011 filings and tax rules, so it misses the sharp rate hike on pass through businesses that took effect in 2013. The fiscal cliff resolution hiked top tax rates on pass throughs from 36 to 39.6 percent, imposed the new 3.8 percent surtax on top of that, and then restored the old Pease limitation on deductions.  The net effect of all this was to increase the tax top tax rate on pass through businesses from 35 to 44.6 percent!   Treasury issued their paper just last year, so they could have adjusted their estimates to reflect these higher rates, but they chose not to.
  • Treasury assumes shareholder-level taxes add another 9 percentage points to the C corporation average rate, but that assumption is based on economic literature from 2004 rather than tax collections from 2011. It also employs some heroic assumptions about the composition of corporate distributions (Footnote 16 in the Treasury report). A subsequent CRS study earlier this year found that shareholder level taxes added just 2.3 percentage points to the effective tax rate of C corporations, while a recent report by the Tax Policy Center found that only 24 percent of C corporation shares are held in taxable accounts, or less than half the level as assumed by Treasury.  More work needs to be done on this!
  • For partnerships, Treasury fails to differentiate between active business income and investment income previously taxed at the corporate level, which is obviously taxed at lower rates. The study notes that 70 percent of partnerships are “finance and holding companies” and that “capital gains and dividend income, which are taxed at preferred rates, amount to 45% of partnership income.” To the extent these partnerships are investing in C corporations whose income is already taxed at the entity level, it makes sense that their effective tax rate would be lower than the top statutory rate.  Perhaps this partnership income should be included in the C corporation bucket, since they are C corporation shareholders?  Something needs to be done to fix this, otherwise you have C corporations credited with both layers of tax, but their partnership shareholders credited with the second layer of tax only.
  • Treasury attributes about twenty percent of partnership income to “Unidentified TIN type” and “Unidentified EIN.” It then appears to assume this unidentified income was taxed at a blend of the two lowest applicable rates, resulting in an even lower average rate for partnerships.
  • Treasury appears to use “taxable income” in the denominator when calculating their effective tax rates, at least for C corporations. You can read our full concern with this here, but the net effect of using taxable income as the base is to overstate the effective tax rate for C corporations versus other business types.
  • Treasury fails to account for the size of business. This is material because while C corporation income comes almost entirely from large, multinational companies, a large portion of pass through income is earned by smaller, less profitable companies who pay the lower income tax rates.  To get a true comparison of tax burdens, Treasury should have broken down their estimates by size.

So Treasury overstates the tax paid by C corporations and understates the tax paid by pass through businesses, and then concludes that C corporations pay more.  Somebody in the economic world needs to take another run at this topic.

Here’s is the effective rate table from the Treasury report that is reprinted in the CAP report.

Treasury Rate Chart

You’ll notice that even with Treasury’s flawed approach, S corporations pay a higher effective tax rate than C corporations on their income when it is initially earned, even with the lower rates on pass through businesses in place back in 2011.  This is a reality that many policymakers do not understand.  S corporations and other pass through businesses pay tax on their income when it is earned, just like C corporations.  And today, their top tax rate is much higher than the C corporation rate.  Our effective rate study from 2013 included the higher, post-fiscal cliff rates and it found S corporations pay the highest effective rates of all.

So it’s simply inaccurate for CAP to argue that the government would collect more in taxes if it forced businesses paying a top marginal tax rates of 44.6 percent to instead pay the lower C corporation rate of only 35 percent.

What about income inequality?  Here’s what CAP says:

Until recently most analyses of income inequality, such as that by Thomas Piketty in Capital in the 21st Century, have ignored the role of pass-through income in the U.S. tax system by allocating it according to a standard economic formula. But, as this report will highlight, it is impossible to understand the growth of income inequality without a deeper look at pass-through income: about 40 percent of the increased share of income going to the top 1 percent of households is explained by pass-through income—twice the contribution of other forms of capital, such as corporate stocks and bonds.

And here’s what we wrote about the Treasury report last year.  It all applies here:

Pass through taxation doesn’t add to “income inequality.” C corporation tax treatment masks it. This is something we have written about in the past.

For example, Warren Buffett owns a large share of Berkshire Hathaway. That corporation pays no dividends and Buffett never sells any stock, so if one was just looking at the tax rolls, Buffett’s reported income is relatively low despite the fact that he’s one of the richest men on the planet. All his income is effectively hidden within Berkshire’s corporate structure. Treasury touches on this dynamic in a footnote at the bottom of page 2:

‘Note that this evidence may seem to suggest at first glance that at least a portion (e.g., perhaps 56% x 35% = 20%) of the rise in the top-1% income share could reflect merely a change in how business income is reported on Form 1040 returns: before annual business income taxes (as pass-through income subject to ordinary individual income taxes) rather than after annual business income taxes (as post-corporate-income-tax dividends or capital gains distributions).’

Figure 2 at the back of the paper helps Illustrate this dynamic.

NBER PT 1 percent chart

The blue line shows the rise of income inequality, thanks to data from Piketty and Saez. The red line shows how much less inequality would have risen if businesses back in 1980 were taxed as businesses in 2013 – i.e. all that income showed up on the individual tax forms rather than the corporate ones. Lesson: C corporation taxation masks income inequality.

So the economists at Treasury and the NBER issue a flawed study on effective tax rates, CAP repeats the core message and uses it to drive a policy of double taxing US businesses, and the tax press repeats it all without comment or analysis.  The assault on private enterprise continues.

BNA Tax Plan Comparison

BNA has a nice chart showing the tax proposals of Clinton and Trump.  It is copied below.  There is one correction we’d make, however.  For Clinton, all those tax hikes she has planned for individuals, capital gains, and estates would also apply to pass through businesses.

So for an S corporation that right now pays 39.6 percent, plus the 3.8 percent ACA surtax, plus the reinstated Pease limitation on deductions, Clinton would add:

  • The Buffett minimum tax of 30 percent;
  • A 4-percent surtax on income above $5 million;
  • A higher, 42.4 percent tax on capital gains held less than two years; and
  • Higher estate tax rates and a lower exemption levels.

Clinton would raise taxes on pass through businesses when they earn income, when they are sold, and when their owners die.  That strikes us as a pretty comprehensive assault on Main Street and far from “No Changes.”

COMPARISON OF PRESIDENTIAL CANDIDATE TAX PLANS

  Trump Clinton House GOP
Corporate Tax Top rate of 15 percent, immediate expensing. No changes to rate structures. Includes tax credits for businesses investing in community development, infrastructure and those that have employee profit-sharing. 20 percent tax rate, immediate expensing.
Passthrough Taxes Top rate of 15 percent, though Trump has hinted at possible changes to come. Immediate expensing. No changes. 25 percent tax rate, immediate expensing.
International Taxes One-time tax of 10 percent on corporate cash held abroad when corporations repatriate the money. Exit tax on unrepatriated earnings. One-time tax on corporate assets held abroad, split at 8.75 percent on liquid holdings and 3.5 percent on illiquid holdings. Shift to territorial taxation of overseas income. Tax imported goods but not exports.
Individual Taxes Three tax brackets of 12 percent, 25 percent and 33 percent, after initially proposing top individual rate of 25 percent. Eliminate carried interest deduction. Buffett rule of 30 percent minimum tax on individuals with $1 million annual income. Also, 4 percent extra tax on individuals with annual income over $5 million. Carried interest taxed as ordinary income. Three tax brackets of 12 percent, 25 percent and 33 percent.
AMT Eliminate. No changes. Eliminate.
Estate Tax Eliminate. Lower threshold to $3.5 million for individuals, $7 million for married couples, with no inflation adjustor. Raise tax rate to 45 percent. Set lifetime gift tax exemption at $1 million. Eliminate.
Capital Gains Capital gains and dividends taxed at maximum rate of 20 percent. Assets held less than two years taxed at ordinary rates. Reduce rate about 4 percentage points for each additional year asset is held until reaching a rate of 23.8 percent on assets held more than six years. Deduction of 50 percent on net capital gains, dividends and interest income, producing rates of 6 percent, 12.5 percent and 16.5 percent on that investment income, depending on individual’s tax bracket.

 

Our Chairman’s New Year Message

2015 was a terrific year for the S Corporation Association.  We saw the shorter, five-year built-in gains recognition period made permanent, we organized the Main Street business community into a coherent advocacy force, and we successfully blocked misguided efforts to enact President Obama’s corporate-only tax reform plan.

For 2016, our goal is to build on these successes to ensure more legislative wins this year and beyond.

  • That means educating policymakers on how taxes on S corps already went up sharply in 2013 and working to enact legislation to repeal that tax hike.
  • It means building out our pass-through business coalition to ensure that S corps and other Main Street businesses are at the center efforts to rewrite the Tax Code, not just an afterthought.
  • And it means tackling new obstacles to S corp capital accumulation and growth like the prohibition against non-resident alien shareholders and other restrictions unique to S corporations that limit your access to capital.

That’s it in a nutshell.  For a more detailed account of our efforts in 2015 and what we have planned in 2016, click here to read our Chairman’s annual letter to the S Corporation Association membership.

Oh, and Happy New Year!

 

Brady Identifies the Challenge

Will Congress reform our international tax rules this year?  Ways and Means Chairman Kevin Brady’s (R-TX) recent interview with Politico’s Ben White gives us some insight.  You can watch the entire interview here.  Our takeaway was that Brady did a good job of identifying both the opportunities and challenges confronting tax reform advocates this year.

On the opportunity side, Brady announced that he intends to have the Ways and Means Committee mark up an international plan later this year.  American companies continue to invert, the BEPS implementation process is moving forward, and a vocal contingent of congressional reform advocates continue to refine their plans, so there are lots of catalysts for action.  The Chairman is “optimistic” they can act on international reforms this year, and it’s likely the new Speaker will support him.

But how does action on international fit with the broader tax reform vision Brady laid out in the interview?  Brady called for a “tax code built for growth” that is “fair, flatter, and simpler” and where “small businesses aren’t paying more than large businesses.”  The Chairman has been a longtime advocate for Main Street businesses – he spoke at the release of our first EY study on pass-through businesses – and he understands the important role these businesses play in job creation and investment.

Those two visions – the desire to move international this year and the recognition that tax reform must address the higher rates imposed on pass-through businesses — highlight the challenge facing the new Chairman.  How he resolves it is unclear, but we know Brady understands the position of Main Street employers and we look forward to working with him to craft a solution.

 

Hatch on the Double Tax

In a positive development, Senator Orrin Hatch (R-UT) and the Finance Committee staff are planning to release a proposal to eliminate the double corporate tax.  According to Politico:

Hatch’s plan takes aim at the double taxation of corporate profits, one of critics’ chief complaints about the current business tax system. Details are sketchy, but the Utah Republican is seriously considering giving companies a deduction for the money paid out to shareholders in dividends. That would have the effect of canceling out corporate income taxes.

“The corporation will not have the double taxation anymore,” said Hatch. “It would go a long way towards topping some of these inversions.”

He hopes to release his plan, which is still being written, “in about a couple weeks.”

Tax Notes added:

One tax lobbyist familiar with discussions around corporate integration said Hatch “is looking at this as more of an incremental approach, basically the art of the doable.” He added that Hatch has not given up on “big comprehensive reform, but if it proves to be not much easier even in a new administration, then this could become a fallback to address competitiveness.”

Specifics will have to wait until the plan’s release, but our understanding of the package is that it would:

  • Eliminate the double tax through the use of a “dividends paid” deduction;
  • Be revenue-neutral without the usual base broadening associated with tax reform; and
  • Be a stand-alone proposal that is not accompanied by rate cuts, innovation boxes, or other provisions not directly related to the double tax.

On the surface, this looks like a really worthwhile effort.  The benefits of eliminating the double corporate tax are numerous and would accrue to shareholders and workers alike.  Our EY study on pass-through businesses made clear that the double tax reduces investment, jobs, and wages.  That’s the reason we made its elimination one of the three key principles in our tax reform letter signed by 120 trade groups.

Eliminating the double tax also helps curb inversions by reducing the tax paid by corporations on their overseas income.  Right now, if a corporation wants to repatriate income in order to pay a dividend to its shareholders, it would have to pay the US tax on the income, and then its shareholders would have to pay the dividend tax.  With corporate integration, only one level of tax would apply.

Finally, integration helps to level the tax imposed on debt versus equity.  If a corporation raises capital to pay for a new investment today, the tax code imposes a really high tax on it.  But if a corporation borrows the money, the tax is significantly lower, and could be negative (i.e. the taxpayer is subsidizing the investment).  The current code encourages businesses to borrow, resulting in higher debt levels and a less secure employment base.  Integration reduces this bias.

All in all, this is reform that’s worthy of the name.  The details are important – how do they pay for this? — and we’re going to review the proposal closely when it’s released, but it’s encouraging to know the Finance Committee is focused on the underlying disease of how we tax businesses.  It’s a good place to start!

Legislative Update: The Pre-Thanksgiving Edition

We’re tracking two key tax items at the moment – tax extenders and international reform.  Here’s our outlook for both.

For extenders, Congress has once again ignored the needs of American businesses by delaying adoption of a multi-year extender package until the last possible moment.  What’s the point of encouraging businesses to invest in new equipment if those provisions are enacted only retroactively?  Not only does it undermine the policy, it creates a dynamic where pass through owners are required to overpay their taxes over the course of the year, draining money from their businesses and reducing their ability to hire new workers and invest in new equipment.

The most recent word from the Hill suggests these concerns may be resonating, and that there’s a vigorous effort afoot to:

  1. Make as many of the extender provisions permanent as possible, including the R&E tax credit, small business expensing, and built-in gains relief;
  2. Extend the other provisions for two years; and
  3. Include EITC and child credit reforms important to the Administration.

In other words, we may see a reprise of the deal they nearly closed last fall.  If true, this development would represent a significant early accomplishment in Ways & Means Chairman Brady’s tenure and help to set the table for more significant tax policies to come.

If the broader package fails, we’re hearing the Administration will push for a one-year extender package (2015 only) to give them one more chance to work on tax policy prior to the 2016 elections.  Obviously, a one-year extension of policies that have already expired would simply prolong the extender roller coaster ride that we’ve been on for the past several years and should be vigorously rejected by Congress.

On the international front, we reported in October that Chairman Ryan had officially put on hold his efforts to fix our international tax code by attaching it to the highway bill.  Ryan was unable to come to terms with Senator Chuck Schumer (D-NY) over highway funding levels and he faced a reform skeptic in Speaker Boehner.

Now that he’s Speaker, that effort may have new life.  New Ways & Means Chair Kevin Brady’s remarks in the Wall Street Journal, where he adopted Ryan’s “step one, step two” approach to pursing international reform in 2016, suggest Ryan has an ally at the head of the Committee.  Add to that Pfizer’s announced merger with Allergan in the largest inversion ever, the continued vocal support of Senator Rob Portman and other key policy makers for targeted international reforms, and the G-20’s endorsement of base erosion recommendations that are likely to hit US companies, and it all builds the case that something has to be done on the international front.

On the other hand, Speaker Ryan’s “60 Minutes” interview (see below) demonstrates he understands on-going tax rate disparity faced by pass through businesses.  Successful pass through businesses currently pay tax rates significantly higher than their corporate and foreign competitors.  That disparity would likely be made worse by reforms that focus on corporate concerns only.  Meanwhile, the innovation box draft that was designed to stop corporate inversions has failed to garner widespread support in the corporate community (see below), reinforcing the perception that the business community is far from unified over exactly what international reform should look like.

So that pretty much leaves us where we’ve been for several months now – the need for reforming how we tax business income is obvious, but the path to getting there is not, particularly with a President who opposes restoring rate parity for pass through businesses.

 

Innovation Box Support

A coalition of large corporations has emerged to support the innovation box approach proposed by Ways & Means member Charles Boustany (R-LA).  We offered comments on that draft last summer and have been waiting along with the rest of the tax community for a redraft.  Rumor has it that the release of a new, improved innovation box draft is imminent, which explains the timing of this week’s announcement.  As Politico reports:

BUSINESS RESPONDS TO BEPS: A corporate coalition featuring Apple, Boeing, Cisco and Intel is using the G-20’s adoption of the OECD BEPS recommendations to ramp up their international tax reform efforts. The group, American Innovation Matters, is releasing a statement this morning pushing for an innovation box, even in the heightened gridlock of a presidential election year.

American Innovation Matters (AIM) joins at least three other coalitions out there pushing corporate tax reform, including RATE, LIFT, and ACT.  That’s a lot of corporate muscle in favor of reform.  Now if they could just agree on what it looks like.

 

Speaker Ryan on “60 Minutes”

On Sunday, House Speaker Paul Ryan appeared on “60 Minutes” to discuss his new job and the challenges he faces:

I think you can walk and chew gum at the same time. I think you can oppose the president on some issue that you fundamentally disagree with, but also work with the other party on issues you do agree with. That’s what I’ve been doing. Look, if we can find common ground, we can on highways, we will on funding the government, hopefully we can on tax policy. Those are three things that will produce certainty in this economy in the next few months. Let’s go do that.

Our friends at Politico focused on the “next few months” line and what that might mean:

The “next few months” line there is interesting. A Ryan spokeswoman said the speaker was specifically referring to extenders, an area where practically everyone expects some sort of deal by the end of 2015. But Ryan has also left open the idea that international tax reform could happen in 2016, even though plenty of people see that as quite the longshot.

During the interview, Speaker Ryan also had the opportunity to lay out his vision for comprehensive tax reform:

Scott Pelley: You have proposed having only two tax brackets, 10 percent and 25 percent. That still your position?

Paul Ryan: Yeah, I’ve always liked that plan. And our tax code really punishes our small businesses, which is where most of our jobs come from. I mean, look, we’re sitting here in Wisconsin, overseas, which to us means Lake Superior. You know, the Canadians are taxing their businesses at 15 percent. The top tax-rate on successful small businesses in America, here in Wisconsin, is 44.6 percent. How can you compete like that? How can you have jobs? How can working families get ahead with a tax system like that?

Scott Pelley: Give me three things you would do on tax reform. Very specifically.

Paul Ryan: Well, I’d simplify the code dramatically. I would collapse the rates down to two or three. And I would change the way we tax ourselves internationally, so businesses can take their money and bring it back home so American businesses stay American businesses. And we have to drop our rates on our businesses. I think those three things right there are what I would do.

Paul Ryan has always been a vocal advocate for Main Street businesses and he understands the challenge S corporations and partnerships face with top marginal tax rates of over 40 percent.  The vision he outlined on “60 Minutes” meets the criteria outlined in our Pass Through Principles Letter signed by 120 of the largest and most active business trade groups in Washington DC.  Now that he’s the Speaker, he has an opportunity to move tax reform the fits that vision through the House.

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