Trump’s Tax Reform Proposal Suggests Significant Cut For Small Businesses

President Donald Trump’s recent tax reform proposal is being seen by some small business owners as having the potential to help them prosper moving forward.

Trump’s plan would lower corporate tax rates to 15 percent from the current 35 percent. Additionally, it would reduce the business income rates paid by so-called pass-through businesses, which includes many small businesses formed as partnerships and limited liability companies as well as some larger entities like hedge funds, to 15 percent. These businesses’ incomes are then “passed through” to owners, who subsequently pay taxes based on the individual income rates, ranging from 10 percent to 39.6 percent.

Small business owners have continued to lobby for being treated equally in corporate tax reform, and Trump’s proposal may hold the potential to satisfy their interests.

“We’re pleased to see the 15% business rate,” said Brad Close, senior vice president of public policy and advocacy for the National Federation of Independent Business (NFIB). “We think it’s a great way to kick-start the small business economy.”

At the same time, will Trump’s proposal come to fruition? Experts point to the fact that tax cuts for pass-through businesses alone could increase the deficit by hundreds of billions of dollars, while Trump hasn’t provided details on how the government would handle this increase.

“It’s a whole issue sitting out there,” said Dean Zerbe, national managing director for tax advisory company alliantgroup. “This will be a case where you’re going to have a significant issue with tax revenue.”

Zerbe called the 15 percent proposal for pass-through businesses “ambitious,” and he believes that it will end up being negotiated to a higher rate. “It’s more aspiration than realistic,” Zerbe said. “But it’s good for the administration to put a strong marker. Why not be aggressive with the opening bell?”

Others point out that tax cuts for pass-through businesses will benefit wealthy individuals as well as small business owners. “The very wealthy are doing pretty well in America,” explained Sen. Chuck Schumer (D-NY). “They don’t need another huge tax break.”

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