Jan Schneider: Rep. Vern Buchanan 'Main Street Fairness Act' bill a ruse to aid rich

This responds to Herald report: “ ‘Best chance in 30 years’ to pass tax reform, says Vern Buchanan.”

Buchanan pushes his Main Street Fairness Act (H.R. 5076) as “a prominent feature” of any new GOP plan. It would limit tax rates for pass-through business income to corporate rates. Instead of another tax boon primarily benefiting the wealthy, it would seem fairer to close the pass-through loophole for big businesses.

S corporations, LLCs, and partnerships are labeled “pass-through” businesses because profits are attributed directly to their owners and taxed at owners’ personal levels. Such entities nevertheless enjoy many classic corporate benefits, including limited liability. This contrasts with treatment of traditional C corporations, which are subject to corporate income taxes and their owners to taxes on dividends. The maximum marginal tax rate for corporations is 35 percent, while that for individuals is 39.6 percent (beginning at $415,050).

Buchanan touts his bill as benefiting small businesses. While small businesses may predominate numerically, however, pass-through income is highly concentrated among the wealthiest Americans. A 2015 study for the National Bureau of Economic Research found that “Overall, 69 percent of pass-through income earned by individuals accrues to the top 1 percent.” Moreover, “The average federal income tax rate on U.S. pass-through business income is 19 percent, much lower than the average rate on traditional corporations.”

The same study calculated federal revenue losses from the surge since 1980 of pass-through arrangements at $100 billion in 2011 alone. The long-term budget impact appears enormous in terms of lost opportunities for cutting taxes for middle class or true “Main Street” Americans, reducing the national debt, sustaining federal programs and other objectives.

Accordingly, the Buchanan proposal would constitute an expensive tax cut for the rich. Conventional wisdom suggests that to understand what a congressional bill does, read its title and assume the opposite.

This story was originally published November 17, 2016 at 4:42 PM with the headline "Jan Schneider: Rep. Vern Buchanan 'Main Street Fairness Act' bill a ruse to aid rich."