FEI’s Committee on Private Company Policy has advocated for establishment of a business equivalency rate (BER) that would effectively tax the income of pass-through entities at the same rate as C-corporations.
The Republican leadership of the House of Representatives, led by Speaker Paul Ryan (R-WI), has laid out an ambitious policy agenda for Congress in 2017 that includes a plan to lower tax rates for pass-through entities and C-corporations. The tax plan, part of Speaker Ryan’s “Better Way” initiative to address poverty, healthcare, national security, the economy and government regulation, represents potentially the most fundamental change to the tax code since 1986.
The proposal, referred to as a blueprint for tax reform by House leaders, calls for a reduction of the corporate tax rate from the current rate of 35 percent to 20 percent, and taxation of pass-through income at 25 percent. Under current law, pass-through income is taxed as personal income, often at the top personal rate of 39.6 percent. Private companies have pushed for equal treatment in any attempts to reform the tax code. FEI’s Committee on Private Company Policy has advocated for establishment of a business equivalency rate (BER) that would effectively tax the income of pass-through entities at the same rate as C-corporations, eliminating any competitive advantage C-corporations would have by paying a lower tax rate. Republican leaders maintain pass-through entities will see additional savings in other parts of their plan that will compensate for the rate difference with corporate taxpayers and allow them to remain competitive.
The blueprint would eliminate the estate tax and allow for the immediate and full deduction of capital investments. With regard to foreign earnings, the plan would establish a territorial tax system, taxing U.S. companies based on the location where their products are sold.
On the individual side, the plan calls for reduction of tax brackets from the current seven to only three, reducing the top individual tax rate from 39.6 percent to 33 percent. The blueprint also proposes to eliminate itemized deductions and increase the standard deduction and child tax credit. Net capital gains, interest and dividend income would be allowed a 50 percent deduction and the alternative minimum tax would be eliminated under the Republican plan. The complete proposal can be found here.
Speaker Ryan has indicated the Ways & Means Committee will begin consideration of tax reform following the November elections, with the goal of bringing the plan to a vote by the end of 2017.
To help private company finance executives understand the possible implications of the proposal for pass-throughs and to learn more about the House Republican leadership’s approach in establishing a separate rate for pass-through income, FEI’s Private Company Roundtable will host a webcast on August 11. Sponsored by PwC, the webcast will feature Barbara Angus, Chief Tax Counsel for the majority side of the House Ways & Means Committee. As the senior counsel to Ways & Means Committee Chairman Kevin Brady (R-TX), Ms. Angus played a key role in the drafting of the House GOP blueprint and is uniquely positioned to provide the perspective of the House leadership on business taxation issues. For a view on the practical impact of the blueprint’s business tax provisions on private companies, Ms. Angus will be joined by Mark Smetana, CFO of Eby-Brown Co. Mark is long-time member of FEI’s Committee on Private Company Policy and has been actively involved in representing the concerns of private companies to legislators on Capitol Hill. The discussion will be moderated by Scott McCandless of PwC. Scott is a principal in PwC’s Washington National Tax Services Practice and has extensive tax policy experience on Capitol Hill.
The webcast will be held on Thursday, August 11 from 2:00-3:30 p.m. EDT. Attendees can earn 1.5 CPE credits. Please click here to register for the webcast.•