Republicans Declare War on Entrepreneurs and Small-Business Owners
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Republicans Declare War on Entrepreneurs and Small-Business Owners

The New Tax Plan Sticks It to the Traditional Core of the GOP Voter Base

David Cay Johnston

The GOP just declared war on the strivers who start their own businesses.

Or, to put it another way: The nice young couple who just opened their own independent coffee shop around the corner will likely be hit with a huge tax increase—as much as 250%—while the corporation that operates thousands of coffee shops all around the world is getting its taxes cut 43%.

The complicated new bill—remember when the GOP promised tax simplicity?—also lavishes federal tax favors on rich individuals and on those who live in low tax states.

No wonder the GOP developed the nearly 500-page tax bill in secret. Had the public’s business been conducted in public, this bill simply would not exist. But it may become law because, if there is anything we know about Washington in the Age of Trump, it is that our elected leaders don’t listen to us, they listen to the political donor class and, in Trump’s case, to those advisers that he says reside in his head.

One winner in the GOP tax plan

The Republican tax plan targets a class of voters who have formed the core of the GOP constituency since the age of Lincoln, entrepreneurs and small business owners.  The party used to promote tax favors for those who start new enterprises.

But now that Trump has turned Washington into a federally protected wetland for big, established business and comfortable billionaires, stocking the swamp with the most voracious predators on Wall Street. The GOP bill shows how it is on the side of Wall Street, at the expense of Main Street.

The tax plan would dramatically raise taxes on many entrepreneurs, in some cases more than doubling the tax rate they pay on their profits. That explains why groups like the National Federation of Independent Business attacked the bill, saying in a statement that the bill “does not help most small businesses.”

Currently, freelancers, small-business owners and others pay taxes at rates of 10% and then 15% on their profits if their total income puts them below about $125,000 annually. The GOP would tax these same businesses at 25% on about one-third of their profits and at 10% to 15% rates on the rest.

So, if your small business made a profit of $1,000, you would pay 10% rate on the first $700 and a 25% rate on the other $300.  Your total tax would rise by $5.

This completely contradicts the oft-stated GOP claim that what matters are marginal tax rates, the rate paid on the next dollar of income. And, of course, it makes the federal income tax system even more complicated.

Meanwhile, big corporations—known as C Corps to tax policy wonks—would pay a 20% rate.

Ponder that for a moment. The nearly 3,000 companies which own nearly all the business assets would be taxed at a lower rate than the guy who fixes your shoes.

Raising taxes on the smallest businesses while giving the Big Boys a tax rate cut from 35% to 20% only makes sense if you negotiate in secret and you only allow into the room lobbyists hired by those who can afford to buy high-priced influence peddlers.

ACTION BOX / What you can do about it

The Republican point man on the tax-cutting project is  Rep. Kevin Brady, chairman of the House Ways and Means Committee. Contact his staff here.

The members of the Ways and Means Committee are listed here.

On the Senate side, the Finance Committee is chaired by Republican Orrin Hatch of Utah. A list of members is here.

The Senate Finance Committee staff are at 202-224-4515 or by fax at 202-228-0554.

Contact your representative or senators.

Had the GOP held public hearings and conducted the people’s business openly, we would have known this and it is unlikely many elements of this deceptive plan would have made it into the bill.

Many people who own their own businesses directly will save big time, notably the man who runs more than 500 businesses from public housing he enjoys at 1600 Pennsylvania Avenue. Instead of paying a tax rate of 39.6% on most of his profits, Donald Trump will pay 25%.

Well, let’s qualify that. Based on existing tax law, we should expect that Trump pays a 39.6% rate on most of his business profits. But, since he is the only White House occupant in the last four decades who won’t show his tax returns, we have to caution that he may pay a lot less. His regular tax rate in 2005, for example, was less than 3.5%. He paid a total rate of 24% only because of a backup tax called the Alternative Minimum Tax. The Trump-GOP tax plan would end the AMT.

And it could well be that Trump has bought tax shelters, like the now illegal one he bought in 1995, that reduce his income tax bill to zero. So, pay close attention if Trump continues to assert that he will pay more under this bill, which could be true and at the same time totally misleading.

We’ll have more in later reports, but we do want to note that as we told you last week, that $2,000 per child tax credit, double the current law, is not in the plan. It was just a head fake.

There is an increase of $600 to $1,600, which can only be used to write taxes to zero. So, if you owe $2,000 in tax and have two kids, you pay no tax and $1,200 of your tax credit is worthless.

Sen. Marco Rubio, a Florida Republican and also-ran presidential candidate, says that is not enough, and he wants to make the credit refundable against Social Security and Medicare taxes. That matters because, for the bill to become law, only two Republican senators can vote no. That suggests some provisions will get changed, but families are less likely to benefit from even bigger tax breaks than the swamp dwellers who now roam freely in Washington.

Lloyd Doggett, the Texas Democrat who is ranking member of the Tax Policy subcommittee of the Ways and Means Committee, described the bill as political fraud because it will add $1.5 trillion to the federal debt over 10 years.

“What the American people really get from this tax plan is a huge bill for the debt incurred to pay for tax breaks that line the pockets of Donald Trump personally along with his billionaire buddies. Like a Trump University degree, it is phony,” he said. The bill is mostly “a giant giveaway to special interests. Since most of the tax benefits go to giant corporations, this bill is a testament to the power of limousine lobbyists.”

It’s important that people tell their lawmakers what they think and loudly. As Doggett put it: “Our country’s future depends on how quickly the truth can catch up with the lie.”

Featured Photo: Third-generation market owner Doug Canepa in Mill Valley, Calif. (2007 photo by the Marin Independent Journal)

November 2, 2017