Dear S-CORP Member:
The S Corporation Association recently surveyed voters and asked them how much private companies and other taxpayers should pay in taxes every year?
Almost without exception, the responses were consistent, reasonable and completely out of step with today’s rhetoric. Voters believed family businesses should pay no more than twenty cents for every dollar of income, or about half what most actually pay and less than one-third what they would pay under a wealth tax as proposed by Senators Warren and Sanders.
How to explain the disconnect? How can voters support reasonable tax rates on one hand and destructive wealth taxes on the other? In my experience, Americans are very moderate in their views, but they don’t always have the clearest picture of where things stand.
So when Senator Warren describes her plan as “just two cents,” voters don’t realize an annual tax equal to two percent or more of a company’s value can easily exceed its annual income, or that taxes that high threaten the future of family businesses nationwide.
That’s where the S Corporation Association comes in. Part of our mandate is to educate policymakers and voters alike on the importance of individually and family-owned businesses and to accurately describe how the policies considered in Washington would affect businesses residing on Main Street.
I was reminded of this mandate while watching Indiana’s new senator on CNBC the other day. Here’s what he said:
I’m a Main Street entreprenuer – I come from the small business world, and its never been better. C corps always take care of themselves. Lowering their nominal rate from 35 to 21 didn’t mean a lot because they had an 18 percent effective rate. Those of us in small business, we pay the full tax rates and when that changed, taking it down to 29.6 from 39.6, that was a big deal. That’s where jobs are created. That’s why we plowed through trade issues with China and so many other areas where recoveries at this stage of the game normally would flame out.
He’s right on both counts – while some sectors and regions could be doing better, its hard to think of another time in our history when so many were doing so well. It really has “never been better.” Meanwhile, the tax reform Congress enacted two years ago has helped Main Street keep the record expansion – now in its 127 month — going.
The S Corporation Association can take some credit for this success. When tax reform was debated, we worked closely with Senators Ron Johnson (R-WI) and Steve Daines (R-MT) on changes to improve the bill for Main Street. As Senator Daines explained at our recent Hill briefing:
Here’s why I think we need tax relief for pass-through businesses… Most of the jobs are created by pass-throughs more than C corps… so if tax reform is the means to an end, the means is lowering taxes and the end is economic growth and job creation. If we’re not addressing the pass-throughs, then we’ve not addressed the heart of what needs to happen to achieve that end.
Those changes included lowering the top individual rate, increasing the size of the Section 199A pass-through deduction, and expanding the deduction to include trusts and estates. The good news is that these efforts succeeded in balancing out the interests of Main Street businesses with those of large C corporations.
What is S-Corp’s plan to build on this success in 2020?
First, we are going to continue to make the case for individually and family-owned businesses. As a group, our companies are critically important to the economy. The stories of how they got started, the challenges they’ve overcome, and their collective contribution to the economy simply cannot be repeated too many times.
Second, we are going to focus on tax policies that help your bottom line now. The 199A deduction is complicated, limited, and temporary. S-Corp and our Main Street Employer coalition are working with allied groups to make the rules issued by Treasury as expansive as possible while building the foundation for making the deduction both permanent and more broadly applied. Getting the rules out of Treasury “right” is a short term effort that will pay immediate benefits to pass-through businesses.
We will continue to enact our SALT Parity reforms too. Limiting SALT deductions for S corporations while allowing them for C corporations is patently unfair. Instead of complaining, S-Corp and its Main Street Employers coalition identified a solution, drafted model legislation, and published the legal analysis demonstrating to states exactly how they can restore the SALT deduction for their pass-through businesses.
We then took the idea to state legislatures across the country. As our President testified before the Louisana legislature last spring:
This legislation would benefit thousands of family businesses operating in Louisiana by restoring their ability to fully deduct the State and local taxes (SALT) they pay on their business income. The bill is intended to be revenue neutral and its effect would be to make these businesses more competitive and Louisiana a more attractive place to do business.
Six states have adopted our approach to date – Connecticut, Wisconsin, Oklahoma, Louisiana, Rhode Island and New Jersey – with several others actively consdering it this year. Our goal is to reach a critical mass of legislatures taking action at the state level and force Congress to revisit the policy for everybody.
Finally, S-Corp is working to build the case for the next tax reform. Since its inception, S-Corp has supported the single-tax system for individually and family-owned companies — tax business income once, tax it when it is earned, tax it at a reasonable top rate, and then leave it alone. S corporations for everybody is our mantra.
Voters overwhelmingly agree. In our recent survey, an overwhelming 77 to 7 percent of respondents opposed the idea of taxing the same income twice. They also supported the ability of businesses to grow as much as possible and still retain its pass-through status. Ultimately, voters are looking for a tax system that is fair for all and encourages the establishment and growth of all types of businesses.
Armed with this support, when Congress next reviews the tax code, our goal is to be at the table, making the case for Main Street and the single tax system.
That’s our advocacy plan for 2020 and beyond. What can you do to help?
- Renew your membership for 2020: S-Corp is not flashy, and we don’t have a lot of bells and whistles. What we do have is great advocacy, and advocacy starts with our members. Renew today.
- Support the S-Corp PAC: The Main Street Community needs to support those members of Congress that support us. Political giving isn’t for everyone, but if you have the ability, support the PAC and help us support our champions.
- Spread the word: Our best ambassadors are our members. Let other private businesses in your community know about S-Corp and the important work that we do.
Again, I am deeply appreciative of your support and look forward to working with you in 2020 to defend the greatest vehicle for private enterprise ever invented – the S corporation.
Chairman, S Corporation Association
Former President & CEO, The McIlhenny Company