The House yesterday cleared a major hurdle in the effort to move a broad tax package when lawmakers signed off on a Senate-passed budget resolution. With the broad parameters of that legislation in place, Main Street is speaking out against an ill-conceived tax hike proposal. A letter signed by more than 90 trade associations reads:
The so-called “millionaire tax” in question – which actually kicks in at income around $620,000 – would saddle them with a tax hike that offsets about half the tax benefit of extending the Section 199A deduction. Coupled with the Net Investment Income Tax and state and local taxes, the proposal would impose marginal rates exceeding 40 percent on businesses that receive the full Section 199A deduction, or twice the rate paid by C corporations.
Certain industries are precluded from Section 199A, however, as is foreign-sourced income and Section 1231 gains. So-called “guardrails” tied to wages, capital investment, and taxable income reduce the value of the deduction for many more. Businesses ineligible for the full 199A deduction would face combined marginal rates above 50 percent. Rates that high are simply not sustainable.
We understand the fiscal pressures involved in crafting a legislative package of reforms and extensions, but increasing the top individual rates would target the very businesses Congress seeks to help. Proposals like this reflect a fundamental misunderstanding of how these companies operate and their central role in the broader economy.
The idea of a 40-percent top rate was floated last week and would raise tax rates on Main Street businesses to their highest level in nearly four decades. The proposal was immediately met with skepticism by Republican leaders and the opposition of the Main Street business community should make clear that raising taxes on America’s job creators is a bad idea.
As lawmakers work toward a final tax agreement, they should focus on policies that promote investment and ensure the tax code works for the real economy. Anything less is a step backward.