How to treat the millions of business owners whose income passes through to their individual tax returns is crucial to the Republican tax agenda
Republicans want to lower the tax rate for these businesses in conjunction with corporate rate cuts. But they haven’t decided what should be taxed at 25%, as a firm’s business income, and what should be taxed at 33%, as the owner’s wages at the firm.
The rules would affect millions of business owners whose income passes through to their individual tax returns rather than appearing on corporate filings. They include law firms, hedge funds and manufacturers and they are a powerful force in Republican politics.
.. If they apply the 25% liberally to pass-through income, the federal government could lose hundreds of billions of dollars in revenue and create a new form of widespread tax avoidance.
They could also create inequities, with law firm associates paying the 33% top rate on wages while their bosses, the partners, pay 25% on income for similar work.
.. Because House Republicans want to lower the corporate rate to 20%, pass-through firms want to follow that rate lower.