Michael Bloomberg’s new $5 trillion tax plan would limit a tax break used by an overwhelming majority of small businesses, a proposal that could endanger business support for the former New York City mayor’s bid for the White House.
On Saturday, Bloomberg announced that he would limit the 20% deduction for “pass-through” businesses that file their taxes through the individual side of the tax code, rather than as “C” corporations, a tax break created by the 2017 tax overhaul signed into law by President Trump.
A representative for the Bloomberg campaign said on Monday that it was not clear whether the pass-through deduction would be totally eliminated or if it would be capped so that wealthier small-business owners could not use it.
“Right now, [capping the deduction] is under consideration, but if I said ‘yes,’ it wouldn’t be a hard ‘yes,’” said Brian Reich, a spokesman for the Bloomberg campaign.
More than 14 million small businesses claimed the pass-through deduction on their 2018 taxes, and a large majority of these taxpayers had adjusted gross income between $100,000 and $200,000, according to CNBC. Over 90% of businesses in the United States are pass-through businesses, according to the Tax Foundation.
“In our research, we found that 72% of business owners find that deduction to be important, and they’re using anything from it to invest in the business and invest in the employees by increasing compensation and creating jobs,” said Kevin Kuhlman, a senior director of federal government relations at the National Federation of Independent Business, a group that represents small businesses. “So, we have seen significant benefits from the implementation of the small-business deduction.”
While most of the businesses that file as pass-throughs are small, the majority of the income goes to big businesses or high-earners, making it a target for Democrats. Roughly 80% of the deduction flows to taxpayers with incomes over $1 million, according to the Center on Budget and Policy Priorities.
Bloomberg included limiting the pass-through deduction as part of a number of tax increases to pay for his legislative priorities.
Besides modifying the pass-through deduction, Bloomberg proposed increasing the top income tax break for individuals to 39.6% from 37%, imposing a 5% surtax on incomes above $5 million, lowering the threshold for paying the estate tax, which would make more taxpayers liable for the tax, and raising the corporate income tax rate from 21% to 28%. Before the 2017 tax reform bill, the corporate income tax rate was 35%.
How these measures are modified will depend on how much revenue Bloomberg needs to finance his legislative priorities if he becomes president.
“It may be a little more than $5 trillion; it could be a little less,” Reich said.
The NFIB’s Kuhlman noted that eliminating the deduction will garner the attention of small-business owner voters, potentially dissuading these voters from supporting candidates. He also said that the NFIB will be informing members about candidates’ proposals over the remaining 10 months and will focus on how candidates propose changing the pass-through deduction. This deduction was critical for small-business owner support of the 2017 tax reform bill.
[Opinion: Michael Bloomberg’s $5 trillion tax hike proposal ‘moderate’ in this Democratic field]
