Tax Day Headlines Miss the Full Story
Recent news coverage suggests that the Working Families Tax Cut Act was a bust. Here’s Politico’s Bernie Becker when asked if this tax filing season has lived up to expectations:
The short answer is no… it wasn’t just one person promising $1,000. It was a key line they said over and over again. When you get refunds a third of the way there, there’s no way to suggest anything but that they overpromised.
But the promise of tax savings was not limited to refunds – it also included lower tax payments to close out 2025 and lower taxes paid through withholding or estimated payments for tax year 2026.
Piper Sandler has the full story. Tax refunds have increased by $37 billion and are on track to hit by $50 billion by early May. Non-withheld tax payments have already been cut by $37 billion and are on track to be cut by about $45 to $50 billion. Lastly, reduced withheld taxes should reduce taxes by another $30 billion.
All in, that’s about $130 billion in total relief. That relief is a key component to keeping Main Street humming. As our Main Street Employers Coalition letter signed by 100 trades stated:
Absent action, employers and workers would have faced the single largest tax increase in the nation’s history. This tax hike would have fallen disproportionately on the 95 percent of American businesses organized as pass-through entities – S corporations, partnerships, and sole proprietorships. These businesses employ 63 percent of private sector workers and they contribute the majority of business income to our national economy.
This discussion underscores a broader challenge. If the tax press is struggling to capture how tax relief is actually delivered, it’s no surprise that the public conversation ends up confused. That makes it all the more imperative for Main Street to get out there and tell the full story, something we’re working to do through our Main Street Employers Coalition.
Bottom line: Tax relief is reaching households and Main Street businesses through multiple channels, and any serious assessment should account for all of them.
House Panel Moves CTA Relief
As we previewed recently, the House Financial Services Committee yesterday advanced legislation that would repeal the Corporate Transparency Act’s reporting requirements for over 30 million American businesses. The measure – as amended and approved by the panel – codifies a Treasury Department rule limiting the CTA’s scope only to foreign entities, while protecting sensitive information already collected under the state by requiring a purge of the beneficial ownership database.
It’s a huge win for the tens of millions of Main Street businesses targeted by this ill-conceived reporting regime, and marks a new milestone in our efforts to rein in one of the most sweeping data collection mandates ever conceived. Better still, it appropriately applies a risk-based approach to enforcement that shines a spotlight on bad actors, not law-abiding Americans.
So why was this action necessary? Here’s the bill’s sponsor, Representative Warren Davidson:
We’ve heard from small businesses and individual citizens from around the country who have been shocked to find that their small business is presumed to have committed a crime. Therefore, they’re essentially being served a search warrant…This is the most poorly thought out, poor structured approach that I could think of.
What we need to do today is lock in the rulemaking that the executive branch has done. They’ve had the notes of proposed rulemaking. They’ve had massive feedback. And the feedback overwhelmingly says that the people want to they want to they want to they want security, but they also want privacy, just like the Founding Fathers did. And that’s why our Constitution’s structured the way that it is. So I think the Administration’s thoughtfully addressed this, and now it’s our burden to do this with lawmaking.
Chairman French Hill later shared his thoughts:
Let’s start out with some basic principles here. First, it is illegal to do money laundering, illegal to structure transactions, illegal to hide money through the American corporate system. And we have a rule on that that’s been in place since 2016, the Customer Due Diligence rule, where every bank already collects the beneficial ownership information for everyone who has a business entity in the company.
Second, the impact on the small business community: 33 million businesses have to comply with the rule as designed…we’re asking Joe’s HVAC company to go through the process of complying with a form with a government entity he’s never heard of, filling out another form that could be a database that could be leaked. As passed by Congress, this act imposed an onerous, confusing, duplicative filing requirement on small businesses.
If we limit the beneficial ownership database to foreign actors… aren’t we marshaling our resources directly at the people we suspect of tax evasion or human trafficking or money laundering? I think it better focuses federal resources, and I think it’s more fair to our small businesses.
Longtime S-Corp ally Carol Roth also weighed in to urge lawmakers to advance the measure:
In short, today’s markup reflects that sustained advocacy and a growing recognition in Congress that the CTA’s reporting regime misses the mark.
The bill now heads to the House floor, where lawmakers will have another opportunity to deliver meaningful relief to Main Street while preserving the tools needed to combat illicit finance. We’ll be urging lawmakers to act swiftly and hope you’ll join our efforts.
Full Court Press on CTA
Today’s piece by the Washington Post Editorial Board is a helpful reminder that while the Corporate Transparency Act has been knocked down in the past year, the fight continues. As the Post summarizes, the CTA deserves to be repealed:
At a practical level, the law is ineffective because it adds a new reporting requirement to stop behavior that is already illegal. The businesses that would abide by the Corporate Transparency Act already follow the law, while criminals would ignore it or get around it.
In the meantime, the federal government will amass a database of millions of small businesses, as well as their owners and workers. As the government has repeatedly demonstrated its inability to properly secure data, even for its own employees, it ought to have a very good reason to collect such data in the first place.
The good news is there are three distinct opportunities to move towards a permanent fix of the CTA, starting with tomorrow’s markup in the House Financial Services Committee. Lawmakers are set to consider the Repealing Big Brother Overreach Act, led by Rep. Warren Davidson and cosponsored by 191 House members, along with an amendment requiring the existing beneficial ownership database be purged within 90 days. These measures ensure that the CTA is limited to foreign business owners only while protecting the personal information of the millions of small business owners who already reported.
Second on our list of CTA opportunities is the pending final rule expected out of Treasury any day now. This rule would lock in the reforms announced last Spring that limit the CTA’s scope to foreign-owned entities. The shift reflects a more risk-based approach to enforcement, one S-Corp and its Main Street allies have championed for years. We’re also keeping an eye on a recent House FSGG appropriations draft, which – unlike past efforts – would withhold funding from FinCEN until the rule is finalized.
Finally, there’s lots of activity at the court level. Readers will recall that the National Small Business Association successfully challenged the CTA in federal district court, only to see that decision reversed on appeal. Now, the case may be headed to the U.S. Supreme Court via a petition for certiorari filed last week, teeing up a potential landmark ruling on the scope of Congress’s authority. The NSBA case is one of a dozen lawsuits pending in various courts, providing SCOTUS with ample justification for taking up this important case.
So the Washington Post is our new ally in the fight to preserve privacy and to reduce needless, ineffective paperwork obligations like the CTA. They are a welcome addition to the team, and we look forward to celebrating a big CTA win with them soon. There are lots of opportunities for success here – we just need to get one of them across the finish line.
Talking Taxes in a Truck Episode 49: Ryan Ellis on Selling the WTFC, Reconciliation 2.0, SALT Games, and More
Tax season is in full swing, and on this episode we’re joined again by Ryan Ellis, who brings a front-line perspective to the discussion as an IRS Enrolled Agent. His message is a timely one: Americans are benefiting in a big way from the Working Families Tax Cut Act, but too often don’t connect those lower tax bills to the policy changes enacted last year, an important reminder as we head into a midterm cycle and a top priority for our Main Street Employers Coalition’s ongoing outreach. From there, Ryan breaks down the outlook for “Reconciliation 2.0,” before turning to the growing risks around SALT as New York pursues a “haircut” that could undermine our SALT Parity successes nationwide. We close with a look at the broader state tax landscape and the continued migration away from high-tax, high-regulation states, trends that show no signs of slowing.
You can find Ryan’s work at the Center for a Free Economy: https://www.centerfreeeconomy.org/ / @cfeconomy on X.com.
New York’s SALT Follies
As the NY State Assembly extends the debate over its budget, here’s more on the SALT Parity “haircuts” included in their plan. These haircuts will hurt thousands of small and large New York pass-throughs, accelerate the “highest in the nation” taxpayer migration out of the state, and give credence to the PTET critics. In other words, they’re a really bad idea.
S-Corp initiated its SALT Parity campaign to level the playing field with large public C corporations. Under the federal SALT cap, C corporations continue to deduct their SALT whereas most of the state and local taxes paid by pass-throughs are subject to the new cap. To fix this, thirty-six states have enacted our SALT Parity laws.
NY enacted their version back in 2021. (NYC followed suit in 2022.) Both allow S corporations and partnerships to pay their state/city income taxes at the entity level (PTET), restoring the federal tax deduction and leveling the playing field with their C corporation competitors. To protect the business’ owners from double taxation, the law gives them a tax credit equal to the PTET.
The legislation before the NY Assembly would roll back that benefit by giving a “haircut” to the credit. As summarized by EY:
The Senate Bill (Part GG) would also reduce the PTET credit to 90% for NYS purposes (Part RR) and to 75% for NYC purposes. The Assembly Bill (Part OO) only provides for the reduction of the NYC PTET credit, limiting it to 75%. These provisions would be effective June 1, 2026, and appear to be effective for PTET tax year 2026 and forward (note the due date for the NYS and NYC PTET elections for the 2026 tax year is March 16, 2026.). Because the NYS PTET uses a marginal rate structure, partners that pay a lower marginal tax rate than their partnership will face a proportionally more significant state tax increase from the credit limitation.
In effect, New York is taking a portion of a tax benefit meant for employers and putting it into the state and city coffers instead. That’s bad for New York businesses and bad for tax policy.
Punishing NY Employers
New York enacted its PTET back in 2021 and, from the beginning, the elections were widely popular:
As of 2025, according to the state Department of Taxation and Finance, nearly 100,000 entities had opted to pay New York’s state PTET tax, which, in fiscal year 2026, is expected to raise $16 billion. All that money ultimately will be refunded to entity partners and shareholders via PIT credits.
Now NY is looking at a broad package of tax hikes, including confiscating a portion of the PTET benefit through the credit haircut. As noted by a large group of NY-based business trades, the burden of these hikes will fall on employers both large and small:
Like nearly all other state PTET regimes, New York’s PTET credit equals 100% of the PTET paid by the pass-through entity. These regimes were designed to create a level playing field for pass-through businesses, which were uniquely harmed by the SALT cap…. [I]f this credit is reduced so that it is no longer dollar-for-dollar, the burden will fall not on a wealthy individual’s take-home pay, but on a small business owner’s ability to pay their workers, grow their business, and support their communities.
These tax hikes couldn’t come at a worse time for the state as NY already is bleeding taxpayers. As this graphic illustrates, NY is losing more taxpayers than any other state in the country.
The reasons for this exodus are multi-fold, but the state’s tendency to overtax businesses is clearly a big part of the problem. The Tax Foundation scores NY as the worst in the nation when it comes to tax competitiveness, beating out strong applications by New Jersey and California. The state also relies heavily on wealthy taxpayers to finance its spending. This from the Manhattan Institute:
As of 2023, the 68,570 New York households with incomes above $1 million represented 0.7% of all resident PIT filers and earned 26% of adjusted gross income (AGI) while generating 41% of the total income taxes paid by state residents, according to the state Department of Taxation and Finance.
So much for the rich not paying their fair share. How bad are taxes in NY and NYC? Here’s a nice Manhattan Institute graph showing just how high they go when you pay the top rates and operate in NYC:
Remember, these rates are on top of any federal taxes owed and they provide a strong incentive for successful New York businesses to pack up and move elsewhere. The full PTET deduction helped mitigate that incentive, and now they are thinking about reducing it.
PTET Critics
Debate over the Working Families Tax Cut Act included efforts to roll back our SALT Parity bills. Critics argued the policy was a loophole used to generate state revenue at the expense of the Federal Treasury. Here’s the Tax Foundation on that point:
The Senate cracks down on some states’ practices of using PTETs as a revenue generator. Some states impose higher rates for entity-level taxes, either by taxing all income at a flat rate equal to the top rate of the graduated-rate income tax, or by imposing a separate higher rate. Businesses sometimes elect to pay this higher rate because it yields federal tax savings that exceed the additional state burden…
As we noted at the time, the examples used were not as clear-cut as described. The PTET rate in Wisconsin, for example, was selected because the state already allowed pass-throughs to pay at the entity level, using the slightly higher corporate rate. A similar response applies to concerns regarding the use of a flat PTET rate versus using a progressive scale. It was done for simplicity and to avoid gaming at the state level.
On the other hand, imposing a haircut on the PTET credits is clearly an effort by states to siphon off tax benefits at the expense of the federal taxpayer. Massachusetts is guilty of engaging in this scheme, and now New York is thinking about doing something similar.
These haircuts are a bad idea. They raise taxes on Main Street businesses and increase the odds Congress takes steps to address them. That would mean no PTET benefits for NY pass-throughs, or anybody else for that matter, including NY State.