Obama’s Corporate Framework May Create Double Tax, Camp Says

President Barack Obama’s suggestion that businesses reporting income on individual returns could be taxed more like corporations amounts to a “double tax,” House Ways and Means Chairman Dave Camp said.

Camp, a Michigan Republican, made the comments today at a committee hearing in Washington that focused on how closely held businesses should be treated in a U.S. tax code overhaul. These firms pass through their income to the owner’s individual tax return, allowing them to pay taxes on that income at the individual rate instead of the corporate rate.

In Obama’s proposed corporate tax revisions, which the administration released on Feb. 22, he said large companies are “increasingly avoiding corporate tax liability by organizing themselves as pass-through businesses.” Republicans maintain that such businesses are often small and should be protected. The tax treatment of these businesses will be an important element of any tax code overhaul in Congress.

“Isn’t it better to have fewer business entities subject to double taxation?” Camp said at today’s hearing.

Obama’s hasn’t proposed a threshold at which pass-through businesses should be taxed in a way that would be similar to corporations.

Republican Concerns

Camp’s objection to taxing pass-through businesses more like corporations reflects the longstanding concern among Republicans that corporate income is taxed twice. Income is taxed first, they emphasize, at the corporate level and again when it is distributed in the form of dividends.

Mark Smetana, the chief financial officer of Naperville, Illinois-based Eby-Brown Co., which is a pass-through business, said Obama’s suggested changes would hurt his company.

“That would decrease our opportunities in terms of reinvestment and growth,” he told the panel today.

Representative Sander Levin of Michigan, the committee’s top Democrat, said the characteristics of pass-through businesses have evolved over the years and warrant scrutiny.

“It used to be that pass-throughs were a reasonable proxy for small businesses,” he said. “This identity is breaking down.”

To contact the reporter on this story: Steven Sloan in Washington at ssloan7@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

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