Half of a new business tax break created by the Republican tax law will go to taxpayers earning more than $1 million annually, according to a new congressional analysis published Monday.
The report, prepared by the nonpartisan Joint Committee on Taxation for an upcoming Senate hearing, underscores that the tax break, a complex new feature of the tax code, will provide big tax cuts for high-earning individuals who are most likely to own private companies.
About 44 percent of the tax cuts for so-called pass-through businesses will accrue to tax filers with more than $1 million in 2018 and more than 90 percent will go to those earning more than $100,000, according to the committee’s analysis.
By 2024, more than half of the cuts will go to about 200,000 people earning more than $1 million.
Republicans included the tax break in the legislation as a way to help small businesses compete, they said. Most businesses are not taxed at the business level, but rather pass their income straight through to owners’ individual returns. Such pass-through income gets a 20 percent deduction under the new law, subject to a host of complicated rules and restrictions.
The idea behind the deduction was that it would allow mom-and-pop shops — sole proprietorships and partnerships, for instance — to continue competing against corporations that would enjoy the new 21 percent corporate tax rate.
But while the vast majority of small businesses are pass-throughs, not all pass-throughs are small businesses. Some, including law firms, hedge funds, and other big partnerships, are major businesses.
Some outside analysts criticized the GOP tax bill on the grounds that the new pass-through break would mean big tax cuts for high earners and big companies. Some of the rules included in the bill are meant to limit hedge funds, lawyers, and other service-sector businesses from benefiting.
The report was prepared for a Senate Finance Committee hearing scheduled for Tuesday on the effects of the new tax law.
