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November 7, 2017

‘Pass-through' businesses concerned about tax plan

By JOYCE M. ROSENBERG
AP Business Writer

The GOP's proposed tax overhaul is getting a mixed reaction from small business advocates, with some saying they hope the plan will be revised as it makes its way through Congress.

The biggest misgivings were over Republican lawmakers' plan to tax 70 percent of owners' income from their companies at individual rates as high as 35 percent. The remaining 30 percent of their business income would be taxed at 25 percent, the new corporate tax rate under the plan. Small business advocates had expected that owners' entire business income would be taxed at 25 percent, the amount contained in an early version of the proposal floated in late September.

The proposal released last week would affect owners who are sole proprietors, partners or shareholders in what are called S corporations. All of these owners report their business income on their individual returns and are taxed at individual rates. They're known as “pass-through” businesses because their income passes through business returns and forms to their individual 1040 forms, where it is then reported to the IRS.

“This bill leaves too many small businesses behind. We are concerned that the pass-through provision does not help most small businesses,” Juanita Duggan, CEO of the National Federation of Independent Business, said in a statement.

Small Business Majority CEO John Arensmeyer said, “nearly nine in 10 businesses that pass through their income already pay at the 25 percent rate or less,” and said the bill would help wealthy individuals more than small businesses.

The Small Business & Entrepreneurship Council alluded to the fact that the proposal was nowhere near a final form and said the group hoped the plan would be changed to help more owners. Karen Kerrigan, the group's CEO, said she hoped for “fair and realistic rules that do not exclude legitimate profits from the lower rate, which is needed capital for small business growth and survival.”

Kerrigan did praise the bill's plan to end the estate tax, which can force some families to sell a business after an owner's death to pay the estate's tax bill.

The National Association for the Self-Employed said the plan's overall stated goal of simplifying taxes would help freelancers and small businesses. Proposals that also included reducing the number of individual tax brackets to four from seven and increasing the standard deduction “will all provide significantly easier tax returns and easier tax planning for small business owners,” said Keith Hall, the group's CEO.

OPTIMISM DIP

Small business owners have lost a bit of their optimism during the fourth quarter as many struggle to find workers for their job openings, according to a Wells Fargo survey released Monday.

The Wells Fargo/Gallup Small Business Index fell to 103 in October from 106 in a survey taken in July. The reading during the summer was the highest for the index since before the recession officially began a decade ago.

Sixteen percent of the 602 business owners surveyed in October said hiring and retaining quality staff is their top concern, up from 13 percent in the previous survey. Nearly a third of owners said they want to increase hiring. But with a tight labor market, owners have reported in a number of surveys that they are having a difficult time filling their open positions. On Friday, the Labor Department said the unemployment rate fell to a 17-year low of 4.1 percent.

“Hiring the workers they need has clearly become a more pressing issue for small business owners,” said Well Fargo Senior Economist Mark Vitner.

The slip in optimism was similar to one reported in October in the monthly survey by the National Federation of Independent Business. But NFIB Chief Economist William Dunkelberg said the decline among the group's members was due to uncertainty about taxes and health care costs.


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