The National Federation of Independent Businesses (NFIB), the interest group representing small business owners nationwide, has come out against the Republican tax proposal introduced Thursday.
Small businesses have been loved by politicians for years and lauded as the ‘engine of the economy’, and this love of small businesses continued in a White House event in August celebrating small business owners. Criticism from the NFIB is likely to be taken quite seriously.
“Small business is the engine of the economy,” NFIB president Juanita Duggan said in a statement. “We believe that tax reform should provide substantial relief to all small businesses, so they can reinvest their money, grow, and create jobs.”
“This bill leaves too many small businesses behind. We are concerned that the pass-through provision does not help most small businesses,” the statement continued.
The pass-through provision is a 25 percent tax rate that business owners are able to pay instead of whatever rate they would belong in based on personal income. However, there are some rules as to what kind of businesses can claim this rate to prevent individuals from claiming pass-through rates out of convenience.
“We will work with [House Ways and Means] Chairman [Kevin] Brady to make the necessary corrections so that the benefits of tax reform extend to all small businesses,” Duggan said.
Reshaping the rules of what businesses qualify for the pass-through rate can engineer — intentionally or not — loopholes for individuals who shouldn’t qualify for the lower rate to take pass-through rates. This, in essence, creates or even widens tax loopholes for the wealthy.
An attempt to correct the pass-through provisions for small businesses could be the first major hurdle the Republican tax plan faces, as missing the mark here would through the plan even farther out of fiscal balance. Then again, failing to address the problem alienates a core constituency for the Republican lawmakers, and one that fairly or not is known as the ‘engine of the economy’.
Katelyn Kivel is a journalist and political scientist in Kalamazoo, Michigan. Follow her on Twitter @KatelynKivel.