Dave Camp, the chairman of the House of Representatives’ Ways and Means Committee, has expressed a strong desire to reform the taxation of small businesses. Camp, a Republican representative from Michigan, aims to pass reform legislation this year. However, he faces the significant challenge of brokering compromise between Republicans and Democrats severely divided over tax policy.
Small business tax policy has long been a divisive topic in Congress. Republicans oppose raising taxes on higher-income individuals because they view such a measure as restrictive to business owners’ ability to create jobs. Democrats have traditionally supported raising taxes on higher-income individuals as a means of increasing revenue. The recent “fiscal cliff”-averting deal was a win for Democrats, as it increased the tax rate for individuals with an income above $400,000.
Camp’s specific tax reform plan has not yet been revealed, but it will address not only small business taxes, but taxes for non-corporation businesses known as “pass-throughs” as well. Pass-throughs range in size from small stores to international law firms, and include businesses whose profits go directly to owner partners rather than corporate shareholders.
The highest income tax rate for pass-through businesses this year has been 39.6 percent. The highest corporate income tax rate is currently 35 percent. According to the congressional Joint Committee on Taxation, 53 percent of the total income in the pass-through category in 2013 will be reported by taxpayers earning $200,000 or more.
Orrin Hatch, highest ranking Republican on the Senate Finance Committee, said “It has become more and more common for my friends on the other side of the aisle to argue in favor of simply eliminating so-called tax loopholes in order to raise revenue, and then calling that process quote-unquote tax reform.”
In addition to Democrats opposing his proposed reform plan, Dave Camp must contend with other plans being developed concurrently with his own. Max Baucus, the top Democratic tax law writer in the Senate, is promoting his own tax reforms.
The Obama administration has weighed in as well, proposing the idea of making some larger pass-through businesses file as corporations in the future. Camp and his fellow Republicans have not been receptive to this idea, but are interested in making certain tax breaks–like equipment costs–permanent for business owners.
Dixon, Kim. “Top House Tax Lawmaker Trains Sights on Small Business.” Reuters, 3/11/13.