Pass on "Pass Through"

Wasteful tax giveaways disguised as help for small business

A recent press release from Governor Fallin advertised that she was participating in the “Bring Small Businesses Back Bus Tour” when it came to Oklahoma City. This tour is sponsored by the “Job Creators Network,” an association of corporate leaders started by the former presidential candidate Herman Cain and one of the founders of Home Depot. Governor Fallin’s press release especially focused on promoting H.R. 5374, a proposal by Illinois Republican Congressman Randy Hultgren that he calls the “Bring Small Business Back Tax Reform Act.”

Rep. Hultgren’s legislation would enact a large tax cut for “pass-through income”—the term for business income that is reported on the personal tax returns of the business owners. Business owners typically choose to pass through this income so they can pay a lower personal income tax rate than they would if it was taxed as normal business income. It’s already a lucrative tax break that is estimated to reduce federal tax revenues by more than $100 billion per year.

Congressman Hultgren’s bill would supersize this tax break. He would allow business owners to pay a 10 percent rate on their first $150,000 of income and a 20 percent rate on income between $150,000 and $1 million. For the wealthiest business owners, making upwards of $415,000 per year, H.R. 5374 would cut their top marginal tax rate almost in half (from the current 39.6 percent). These business owners would be paying a lower marginal rate than the 25 percent paid by a median income household making about $52,000 per year. The result is that many business owners would be allowed to play by a different set of rules and pay far less in taxes than their own employees.

Gene Perry is policy director at Oklahoma Policy Institute. For the rest of this article and more, visit okpolicy.org.