Senate Republicans deviated from the White House and House of Representatives in their tax bill released Thursday by not including a special 25 percent tax rate for small businesses, but quickly won over support from small business groups.
Rather than include the special top 25 percent tax rates for sole proprietorships, partnerships, and other businesses whose income passes straight through to owners’ individual returns, the Senate bill instead allows those business owners to deduct 17.4 percent of their business’ income from their taxable income.
That would place the top rate for these businesses at around 32 percent. That higher top rate might be less attractive to such pass-through businesses, but the deduction would also effectively lower rates in the brackets, providing bigger breaks to smaller businesses.
While pass-throughs make up the vast majority of businesses and many are small mom-and-pop operations, some are large businesses, such as law firms and hedge funds.
The National Federation of Independent Business, a key small business group, originally had given the House bill a cool reception because of the limitations and rules applying to the 25 percent rate. But it immediately praised the Senate bill Thursday.
“It includes real tax relief, allowing small business owners to keep more of their money to invest in growth and create new jobs,” said Juanita Duggan, the group’s head.
One consequence of departing from the 25 percent rate, agreed upon in the joint framework on taxes reached with the White House and House, is that now the upper and lower chambers will have to resolve the major differences between their proposals.
Sen. Pat Toomey, R-Pa., a member of the Finance Committee, projected confidence Thursday that an agreement would be reached.
“We use different mechanisms to get there, but again mechanisms can get worked out,” he told reporters.
