The “framework” released by the White House this morning continues the assault on family-owned businesses. Advertised as a less aggressive plan than the Administration’s Build Back Better (BBB) proposal, the bill would result in higher marginal rates on family-owned businesses than the BBB, and it would apply those rates to S corporations and other pass-through businesses making as little as $500,000 a year.
This morning, more than 90 trade associations representing millions of individually- and family-owned businesses sounded the alarm on the proposed changes to grantor trust and valuation rules in the Build Back Better Act (H.R. 5376) and called on lawmakers to reject these provisions.
The letter builds on a prior S-Corp letter sent last week, focusing on the adverse impact these proposed changes would have on family businesses nationwide. Regarding Grantor trusts, the letter reads:
Like a vampire, the Wyden “mark-to-market” (or M2M) proposal rose from the dead over the weekend in what appeared to be a Hail Mary effort to replace large portions of the House tax hike plan at the last minute. Those parts were objected to by Senator Sinema, leaving negotiators with a large hole both in their revenue and their rhetoric. Enter M2M. Then Senator Manchin and Chairman Neal spoke up in opposition …
The proposed changes to grantor trusts included in the Build Back Better Act (H.R. 5376) are a serious threat to Main Street employers nationwide. The authors claim these changes would ensure billionaires “pay their fair share,” but in reality they would fall most heavily on family-owned businesses, making it all but impossible for some of them to survive from one generation to the next.
Ken Kies is a former head of Congress’ Joint Committee on Taxation and one of Washington’s most respected tax experts. Today he has a succinct and highly persuasive defense of the Section 199A deduction that’s worth the attention of tax writers.
In a letter published in Tax Notes, Kies makes clear that C corporations are already tax advantaged when compared to pass-through businesses, and that paring back 199A would only make the imbalance worse:
Current law …
Kevin Kuhlman, a Vice President of Federal Relations at NFIB, walks through the results of the organization’s latest research, and details the extent to which Main Street businesses have been kneecapped by severe revenue losses, labor shortages, supply chain disruptions, and rising prices over the past 18 months. Add in the harm these businesses will suffer under the House tax hike bill and what the new Senate debt limit deal means for the timing …
The House tax package would hit private companies twice as hard as public C corporations. It would impose marginal rates of 46.4 percent or more on private companies, while taxing public corporations as little as 26.5 percent. No business structure can survive such an imbalance, so the net effect would be to encourage further economic consolidation away from Main Street and towards Wall Street.
Why should policy makers care? Because private companies are where the jobs …
S Corporation Association advisor and Board member Tom Nichols of Meissner Tierney Fisher and Nichols has published a solid defense of 199A in TaxNotes this week.
As we’ve noted previously, the House tax package would knee-cap private companies with rates nearly twice those paid by public C corporations – 46.4 percent versus 26.5 percent. No business structure can survive such an imbalance, so the net effect would be to encourage further consolidation into the few …