Your S-Corp Association friends attended the Treasury conference on corporate tax policy last week, rubbing shoulders with the Secretary of the Treasury, Alan Greenspan, and others. As expected, the bulk of the speakers focused on tax issues of most concern to Fortune 500 companies – the corporate rate, the treatment of foreign earnings, etc. There’s growing concern that our corporate tax rate is out of whack with the rest of the developed world and this forum served to highlight the benefits of a corporate tax rate cut.
One of the invited speakers, however, S-Corp ally John Satagaj from the Small Business Legislative Council, focused his comments entirely on the state of flow-through businesses and his concern that they not harm the small business community as they work to fix the corporate code.
Also of note was the very friendly attention flow-through businesses received in the background document Treasury prepared for the conference. Chapter 3 of the report exclusively addresses the role S corporations and other flow-through businesses play in our growing economy and it includes lots of helpful statistics on the state of small businesses structured as S corporations, partnerships, and sole proprietorships. A couple of the more compelling facts:
- “93 percent of all businesses in the United States pay their taxes at the individual income tax rates.”
- “The share of S corporation returns as a percentage of all business returns grew from 4 percent in 1980 to 12 percent in 2004.”
- “The number of taxpayers who receive more than half their income from their business was 11.9 million in 2006. Of those, more than a million were subject to the top two income tax rates.”
As the report notes, flow-through businesses are an increasingly important sector of the U.S. economy. Let’s hope the policies coming out of Washington in the next few years reflect that.
Tax Outlook Summary
With the August break upon us, here’s another quick look at all the tax activity on the legislative calendar. We have updated our tax chart, here.
Perhaps the most significant event in recent days was to see how quickly the farm bill managed to turn into a tax bill with the addition of a $4 billion offset for some food stamp additions — no hearings, no warning, and suddenly there’s a $4 billion tax increase on the House floor. Something to keep in mind as the session continues. Here are the current tax highlights:
AMT Reform: This broad, $500-750 billion package is now being discussed as a fall or winter bill in the House. In the Senate, the tax writers are increasingly making it clear they have little or no intention of doing anything permanent on the AMT this year. Smart observers are expecting that another so-called AMT patch – a temporary increase in the AMT exemption levels to restrain the growth in the number of AMT taxpayers – will be adopted late this session, likely just before everybody goes home for Christmas.
Energy Tax Incentives: The House plans to take up the energy bill this Friday, with a $15 billion energy tax package of renewable and conservation incentives included. Offsets to the incentives are targeted at the oil and natural gas industries. Oil Patch Democrats have insisted that the tax provisions be voted on separately, however, so they can support the broader energy bill while opposing the tax package. The total package is expected to pass, but similar concerns in the Senate derailed the Senate energy tax package.
SCHIP: The House and Senate are considering the bill right now. While the bill might succeed in passing the House and Senate, the President has promised a veto. Odds that the current proposal – including the $50 billion tax increase on tobacco – can survive a veto and becomes law are slim to none.
Technical Corrections: Look for this package to be introduced and open to comment in the fall. Last year’s technical corrections package included an IC-DISC provision that would have raised taxes on small and closely held exporters. This provision is likely to be part of the initial bill, but we’re working to keep it out.