The Main Street Fairness Act, offered by Senator Bill Nelson of Florida, a Democrat, and Senator Susan Collins of Maine, a Republican, aims to provide federal tax parity between pass-through businesses and C corporations.
Most small businesses — maybe yours, even — are organized as “pass-throughs.” That means that profits are passed to the business owner and then taxed on individual income tax returns.
Under current law, the top individual tax rate is 39.6 percent, while corporations pay a much lower corporate tax rate of 35 percent.
This makes an already uneven playing field — where corporations tend to have more access to funds and other resources — even less competitive.
The Main Street Fairness Act would prevent these pass-through companies from being taxed at a higher rate than C corporations. Instead, income from pass-through businesses would be treated like corporations’ income.
Collins notes that keeping small businesses healthy keeps Americans employed and the economy strong.
“Small businesses employ more than half of all workers and have generated approximately two-thirds of our country’s net new jobs since the 1970s,” said Senator Collins in a joint statement. “Unfortunately, our nation’s small businesses face a higher tax burden that affects their ability to compete with large firms in the marketplace. Our legislation will help keep small businesses strong by ensuring that they do not pay a higher tax rate than large companies.”
According to the same joint statement, small businesses generate half of the U.S. GDP, 54 percent of all U.S. sales, 41 percent of private sector payroll, and one-third of the country’s export value.
The legislation comes as Congress works to pass tax-reform legislation. A version of the senators’ bill was previously introduced in the House of Representatives by Florida Representative Vern Buchanan. House Republicans’ tax-reform blueprint states that it builds on concepts from that small-business bill, according to The Hill.
The tax-reform blueprint aims to lower taxes across the board but doesn’t seem to provide for tax parity between small businesses and corporations. The blueprint aims to lower the top tax rate for individuals to 33 percent, the top tax rate for pass-through businesses to 25 percent, and the top rate for corporations to 20 percent.
As we all know, legislation can take a long time to become law. (If you need a refresh on the process, here is our favorite video of how that works — cue the nostalgia.) But we’ll follow this piece of legislation and let you know when it hits any big milestones.
And if you feel strongly about this legislation, make sure to reach out to your representatives and senators and let them know.