You couldn’t swing a dead cat in Washington last week and not hit somebody busy touting the benefits of S corporations to the American economy, job creation, and retirement security. First, the President highlighted S corporations while defending his record on tax policy at a news conference last week :
I believe if the Democrats had the capacity to, they would raise taxes on the working people. That’s what I believe. They’ll call it tax on the rich, but that’s not the way it works in Washington, see. For example, running up the top income tax bracket would tax small businesses. A lot of small businesses are subchapter-S corporations or limited partnerships that pay tax at the individual level. And if you raise income taxes on them, you hurt job creation. Our answer to economic growth is to make the tax cuts permanent, so there’s certainty in the tax code, and people have got money to spend in their pockets.
Then, on Wednesday, the Finance Committee held their third hearing on the challenges of tax reform, where Chairman Grassley and other members of the Committee heard excellent testimony from Jeff Johannesen from RSM McGladrey in Des Moines on the importance of modernizing S corporation rules to enable them to better compete. As Mr. Johannesen said in his prepared testimony:
An S Corporation structure is extremely efficient for a growing midsized business. We believe more businesses would benefit from and be able to use the S Corporation structure if the rules governing them were simplified. We think there is a strong argument that the tax rules that distinguish the activities of both S Corporations and LLCs may benefit from a more standard approach.
Jeff then went on to advocate for many of the reforms that are included in H.R. 4421. S. 3857, and S. 3838 - bills designed to remove ancient rules that hold S corporations back from succeeding in the Twenty-first century. During Q&A, Senator Grassley asked Jeff if we had too many choices of business structures. Jeff responded that, rather than eliminate business structures, making smaller reforms to harmonize the different rules would have little impact on revenues and would greatly benefit businesses.
Finally, employee-owned S Corporations were on the Hill en mass on Thursday to ensure that S corporations continue to enjoy the option of being owned by their employees. Armed with a powerful study conducted by the National Center for Employee Ownership showing that S corporation ESOP employees accumulate three to five times(!) the retirement assets of employees with more traditional 401(k)s, these current and former S corporation employees made the strong pitch that Congress and the Department of Treasury should protect both S corporations and ESOPs as they consider big and small changes to the tax code.