Why the Senate Tax Bill Hurts Montana Small Businesses & Main Street – Even with a change to benefit pass-through entities

Nov 29, 2017

By MBPC Staff

On Monday Senate Daines announced that he would vote “No” on the Senate tax proposal, citing that the current bill does more for large corporations at the expense of small businesses. While we appreciate Senator Daines' concern that this bill doesn’t work for Montana, the issues and threats we face in this tax bill are far greater than this narrow issue. Daines’ concern relates to the provisions for pass-through entities. Pass-through entities include partnerships, sole proprietorships, S-corporations, and other companies whose earnings pass straight through to owners’ individual returns, rather than being taxed at the corporate level. The current Senate bill includes a new deduction for taxpayers who have income from a pass-through entity. The Senate bill provides a 17.4 percent deduction on income earned from pass-through businesses, effectively bringing the taxpayers top tax rate down to about 32 percent. Senator Daines is calling to increase this deduction to 20 percent on income, which would further lower their rate. However, small tweaks like this one do not fix this bill. There are several key provisions of the Senate tax plan that are far more harmful to middle-class Montanans and small businesses, which Senator Daines has not yet addressed. For example, decreasing the corporate tax rate from 35 percent to 20 percent largely benefits large corporations that are experiencing record profits, while tax revenue from the same group has been plummeting. The decrease in the corporate tax rates further tilts the scales in favor of large corporations, giving them an unfair edge over Main Street small businesses. 
At the end of the day, the Senate bill's corporate tax cuts are permanent, while pass-through entities would see a tax hike by 2027 because the deduction is a temporary provision set to expire after 2025. Repealing the State and Local Tax (SALT) deduction means increased taxes for small business owners and their customers, and increased pressure on state budgets. Finally, repealing the individual mandate requirement under the Affordable Care Act would cause 13 million Americans to become uninsured. The increase in uncompensated care costs could force some providers to close their doors or cut back spending in ways that undermine the quality of care. Providers might also raise prices, shifting costs to people with private insurance coverage (including employer coverage). Or, states or the federal government might be forced to step in to cover some of these uncompensated care costs, shifting costs to taxpayers. Regardless of what changes are made to the Senate tax bill before a vote later this week, this proposal is still bad for Montana, and it does nothing to help working families. Main Street small businesses don’t benefit from tax cuts to millionaires and billionaires. They deserve Congress to work in a bipartisan manner to find ways to really help small businesses.