Photo Credit: Gage Skidmore/Creative Commons
The GOP just declared war on the strivers who start their own businesses.
Or to put it another way: The nice young couple who just opened their own independent coffee shop around the corner will likely be hit with a huge tax increase—as much as 250%—while the corporation that operates thousands of coffee shops all around the world is getting its taxes cut 43%.
The complicated new bill (remember when the GOP promised tax simplicity?) also lavishes federal tax favors on rich individuals and on those who live in low tax states.
No wonder the GOP developed the nearly 500-page tax bill in secret. Had the public’s business been conducted in public, this bill simply would not exist. But it may become law because, if there is anything we know about Washington in the age of Trump, it is that our elected leaders don’t listen to us, they listen to the political donor class, and in Trump’s case, to those advisers he says reside in his head.
The Republican tax plan targets a class of voters who have formed the core of the GOP constituency since the age of Lincoln: entrepreneurs and small business owners. The party used to promote tax favors for those who start new enterprises.
But now Trump has turned Washington into a federally protected wetland for big established business and comfortable billionaires, stocking the swamp with the most voracious predators on Wall Street. The GOP bill shows it is on the side of Wall Street, at the expense of Main Street.
The tax plan would dramatically raise taxes on many entrepreneurs, in some cases more than doubling the tax rate they pay on their profits. That explains why groups like the National Federation of Independent Business attacked the bill, saying in a statement that the bill “does not help most small businesses.”
Currently, freelancers, small-business owners and others pay taxes at rates of 10% and then 15% on their profits if their total income puts them below about $125,000 annually. The GOP would tax these same businesses at 25% on about one-third of their profits and at 10% to 15% rates on the rest.
So, if your small business made a profit of $1,000, you would pay 10% rate on the first $700 and a 25% rate on the other $300. Your total tax would rise by $5.
This completely contradicts the oft-stated GOP claim that what matters are marginal tax rates, the rate paid on the next dollar of income. And, of course, it makes the federal income tax system even more complicated.
Meanwhile, big corporations—known as C Corps to tax policy wonks—would pay a 20% rate.
Ponder that for a moment. The nearly 3,000 companies that own nearly all the business assets would be taxed at a lower rate than the guy who fixes your shoes.
Raising taxes on the smallest businesses while giving the Big Boys a tax rate cut from 35% to 20% only makes sense if you negotiate in secret and you only allow into the room lobbyists hired by those who can afford to buy high-priced influence peddlers.