ThinkProgress

Trump’s ‘small business tax cut’ is actually for rich people who don’t work

House Ways and Means Committee Chairman Kevin Brady, R-Texas, makes a statement as his panel begins the markup process of the GOP's far-reaching tax overhaul as members propose amendments and changes to shape the first major revamp of the tax system in three decades, on Capitol Hill in Washington, Monday, Nov. 6, 2017. (AP Photo/J. Scott Applewhite)

By now, study after study has shown that the GOP tax reform framework does little to help middle-income earners. The most recent analysis from the non-partisan Tax Policy Center estimates in 2018, the top quintile will get 57 percent of the tax benefits, and by 2027, 30 percent of households in the middle quintile get a tax increase, contrary to House Speaker Paul Ryan’s (R-WI) claim that “everyone will get a tax cut.”

There is little discussion, however, surrounding the idea that the plan is a huge boon to the rich — more specifically, the idle rich. In fact, one of the more sinister points in the plan is a provision that disproportionately benefits those wealthy individuals — one that has been packaged by the GOP and President Trump as a tax cut for small businesses.

At an event in Pennsylvania in October, Trump pitched his tax plan to American truckers, claiming the owners of small family trucking companies, and other small businesses in general, would see more money in their pockets, thanks to a new 25 percent tax rate for small businesses.

“For the many American truckers who file taxes as sole-proprietors, S corporations or partnerships, we will cap your top tax rate at a maximum of 25 percent,” he told the crowd. “Substantially lower than what you’re paying now.”

This, however, is not true.

Around 86 percent of small businesses — mom-and-pop Main Street Businesses — already pay a tax rate lower than 25 percent. This is because, under the current tax code, profits are taxed according to the owner’s individual tax rate, which, for the majority of small business owners, is lower than 25 percent.

But for the top pass-through earners, which include hedge fund owners and lawyers, this creates an enormous loophole, allowing them to effectively re-characterize parts of their income to pay taxes at a rate of 25 percent rather than 39.6 percent.

The House has added a complicated rule to its bill in an attempt to address this. For those “actively” involved in the business, only 30 percent of their earnings would be taxed at the 25 percent pass-through rate. The remaining 70 percent would be taxed at the regular individual rate.

Still, the 70-30 rule doesn’t fully close the loophole.

Hyper-wealthy “passive” owners — those who don’t directly work for the company they own and more often than not are owners in name only, fronting the cash for their ownership but not overseeing day-to-day operations — would still qualify for the special 25 percent pass-through rate on 100 percent of their earnings.

It should come as no surprise that Trump himself, in addition to many of his Cabinet members, are the owners of pass-through businesses. The Trump Organization oversees at least 500 of them.

All told, analysis from the Center For American Progress (CAP) estimates that Trump could get an annual tax cut worth $23 million. (ThinkProgress is an editorially independent news site housed at CAP.) White House advisers like Jared Kushner could see a cut of up to $17 million.

This plan constitutes a $450 billion dollar tax cut for the nation’s wealthiest individuals and does little for the average worker. Whatever the GOP and Trump try to claim, the facts don’t lie: the president’s tax framework is a gift to himself.