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Tax Reform Discussion Draft Released
On February 26th, the House Ways and Means Committee Chairman Dave Camp (R-MI) released a discussion draft aimed at creating a simpler and fairer tax code for small businesses. The goal of Camp's latest draft is to spur greater job creation and higher wages for American workers by reducing the burden the tax code imposes on small businesses.
According to the National Federation of Independent Business, tax compliance costs are 65 percent higher for small businesses than for big businesses, costing small business owners $18 billion to $19 billion per year.
As part of a broader, comprehensive tax reform package that significantly lowers rates for individuals, small businesses and corporations, the discussion draft reforms and simplifies a number of tax rules affecting small businesses and their workers. The discussion draft includes two separate options designed to achieve greater uniformity between S corporations and partnerships. The Committee is soliciting comments from stakeholders on both options – one that revises current rules and a second that replaces current tax rules with a new unified pass-through regime.
The Camp draft is a revenue-neutral, distributionally neutral, reform that sets individual tax rates at 10, 25, and 35 percent. The corporate rate declines from 35 percent to 25 percent over five years and the alternative minimum tax is eliminated. In a landmark change, foreign profits are generally exempt from U.S. tax.
To pay for rate cuts, hundreds of tax breaks are trimmed or outright repealed. On the individual side, the largest of those are cuts to deductions for mortgage interest (no borrowing over $500,000), for charitable contributions (must exceed 2 percent of income), and for state and local taxes (repealed entirely).
On the corporate side, depreciation is slowed down, and the last-in, first-out method of accounting and special deduction for manufacturing is repealed. The big, bold new revenue raisers are an excise tax on the largest banks and slowed cost recovery for research and development and for advertising.
An overview of the discussion draft along with a detailed summary can be found at the Ways and Means website.
To submit comments, please email those comments to: Tax.Reform@mail.house.gov and indicate in the Subject field "Discussion Draft 3: Comments regarding pass-through entities."