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The Sneaky Small Business Tax Democrats Almost Passed

By: Sen. John Thune


To the Editor:

 

While most Americans were enjoying their weekend, Senate Democrats were scrambling to pass a combination of tax increases and wasteful government spending. Wonky Senate procedure and dry tax policy doesn’t exactly make for thrilling television, so I suspect that even the most engaged citizen wasn’t watching when Senate Democrats tried to sneak through a tax hike on certain small- and medium-sized businesses. 

 

On Saturday, just hours before the Senate was to vote on it, the final version of the ironically named Inflation Reduction Act was made public. While Democrats were trying to sell the tax hikes in this bill as only affecting the country’s largest businesses, this new version included changes to the proposed book minimum tax that could sweep up small- and medium-sized businesses too. 

 

Their proposal would have required companies of any size held by funds or partnerships to combine their income to determine if they meet an aggregate income of $1 billion. If the cumulative threshold was met, each individual company, even if unrelated, would be subject to the book minimum tax, even if its own income was far too low to trigger it. 

 

The nonpartisan Joint Committee on Taxation estimated that this change — the Democrat leadership’s new tax on small- and medium-sized businesses — would raise $35 billion on businesses that are still trying to recover from the pandemic and survive a rocky economy. This stealthy legislative change meant more than 18,000 businesses that employ 11.2 million workers risked being swept into this revenue grab. 

 

If Democrats were going to sneak a new multi-billion-dollar tax increase into this bill, I wanted to ensure we put Democrats on record. I forced a vote to kick this tax hike out of the bill, fully offset by a one-year extension of the state and local tax (SALT) deduction cap. In the end, seven Senate Democrats, mostly those facing voters this fall, sided with all 50 Republican senators against the Democrat leadership’s ploy to sneak this tax into the bill. 

 

But instead of continuing the SALT deduction cap, those Democrats immediately reversed course and passed a different tax hike on businesses. Democrats chose to extend the limit on the amount of losses that businesses can deduct on their taxes, and in doing so, Democrats sided with a policy that does nothing for growth or fairness. 

 

Some Democrats have tried to claim that the so-called “Inflation Reduction Act” isn’t raising any taxes. But as this episode demonstrates, this tax-and-spend monstrosity is chock-full of tax hikes, some of which were recklessly thrown together at the last minute to avoid public scrutiny.  

 

Democrats in the House of Representatives should think long and hard about how they will vote today when the House considers this bill. The midterm elections are fewer than 100 days away, the economy is in a recession, inflation is at a 40-year high, more Americans are racking up credit card debt and dipping into their savings, and Democrats are on the verge of passing hundreds of billions of dollars of new taxes. 

 

In this economy?

 

U.S. Sen. John Thune (R-S.D.)

Aug. 11, 2022

Company Tax Notes
Category FREE CONTENT;ARTICLE / WHITEPAPER
Intended Audience CPA - small firm
CPA - medium firm
CPA - large firm
Published Date 08/12/2022

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