Any revamp of the U.S. tax system must address individual and business taxes together, a coalition of small business groups told top lawmakers on Tuesday.
The groups’ insistence on comprehensive tax changes could cause complications for bipartisan efforts in Congress to address business taxes without lowering individual tax rates.
Republicans Paul Ryan and Orrin Hatch are trying to cut the corporate tax rate and help smaller businesses that pay taxes through their owners’ individual returns -- without proposing cuts in individual marginal tax rates that President Barack Obama won’t accept.
They haven’t yet offered a way to do it. Tuesday’s letter from business groups often aligned with Republicans demonstrates how hard that will be, both technically and politically.
“Congress needs to reduce the tax rates paid by individuals and corporations to similar, low levels,” said the letter, signed by groups such as the S Corporation Association, the National Restaurant Association and the National Association of Home Builders. “To ensure that tax reform results in a simpler, fairer and more competitive tax code, Congress needs to reduce top tax rates for all types of taxpayers.”
Ryan and Hatch wrote a letter Monday to many of the same groups asking for ideas on how to reduce effective tax rates for small businesses without touching individual tax rates.
Ryan, chairman of the House Ways and Means Committee, has said he would prefer a comprehensive revamp of the tax code. He’s also said that’s not going to happen until at least 2017, after Obama leaves office.
Meanwhile, Ryan has said he’s trying to find whatever common ground is possible with Obama. Ryan and Obama both want to lower the U.S. corporate tax rate from 35 percent.
Under current law, corporations face two layers of taxation -- the corporate income tax and investor-level taxes on dividends and capital gains. Pass-through businesses, which generate about half of business income, face one level of tax.
Representative Kevin Brady of Texas, a senior member of the House Ways and Means Committee, said Tuesday that he had heard ideas for ways to “cobble together” a plan to provide parity between corporate and unincorporated businesses.
“On paper, it’s doable,” he said. “The concern is that a lot of pro-growth aspects of tax reform are not limited to the business side.”