Center for Budget and Policy Priorities (CBPP) got itself into a lather the other day noting that the new, 20-percent deduction for pass-through businesses will reduce revenues by twice what the federal government spends on Pell Grants.

What’s the link between the Pell Grant program and the business income deduction? None. There is no link. The CBPP could have just as easily compared the deduction to spending on our national defense or agriculture programs.

Moreover, while the CBPP makes certain to highlight the 7.7 million beneficiaries of the Pell Grant program, they ignore the 73 million employees who work for pass-through businesses. …

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The headline is eye-grabbing, but what does it mean?

A new study by Penn Wharton predicts a “mass conversion” of pass-through businesses to C corporation under the new tax law.  Specifically, the study finds that 235,780 pass-throughs representing 17.5 percent of all pass-through income will convert to C corporation in response to the new rules.

What sort of businesses are most likely to convert?  Those professional services businesses that don’t qualify for the new deduction.  Faced with a choice between paying the pass-through rate of around 40 percent and a corporate rate half that much, they are understandably attracted to the …

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The same week our Parity for Main Street Employers group released its model pass-through SALT reform bill, critics of state SALT fixes fired a couple salvos that are worth noting.  First, the IRS announced it plans a new rule putting the kibosh on the SALT charitable “workaround” being considered by several states.

IRS Notice 2018-54 has no direct impact on the S-Corp’s proposed pass-through SALT fix.  Legal scholars can debate the validity of the charitable workaround (a couple recent papers that do a surprisingly good job of that, here …

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When the dust settled on last year’s tax overhaul, pass-through businesses were confronted with new rules for deducting State and local taxes – if they paid the taxes at the entity level, they could deduct them.  If the taxes were paid at the owner level, they could not.

So, S-Corp asked, “Why not give Main Street businesses the option to pay state and local income taxes at the entity level?”  That would preserve their ability to deduct those taxes and make the adopting state that much more attractive to Main Street employers.  Moreover, the tax overhaul allows C corporations to deduct …

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Yesterday’s Finance Committee hearing on the tax bill was interesting, if only to remind viewers that it’s way too early to pass final judgement on the tax overhaul.  Not that several Committee members didn’t try.

Exhibit A was a new Joint Committee on Taxation report with some selective analysis of the tax plan.  Members repeatedly brought up Table 3 and the fact that so much of the “tax benefit” of the pass-through deduction will go to taxpayers making more than $1 million.

The goal of the pass-through deduction was to maintain tax parity …

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