The democratic plan to soak the main street


House Ways and Means Committee Chairman Richard Neal presides over a Build Back Better Act markup hearing in Washington on September 9.


Photo:

J. Scott Applewhite / Associated Press

The House tax package would hit private companies twice as hard as publicly traded C companies. It would impose marginal rates of 46.4% or more on the former, while taxing the latter only 26.5%. No business structure can survive such an imbalance, so the net effect would be to encourage further economic consolidation away from Main Street and towards Wall Street.

Why should policy makers care? Because private companies are where the jobs are. A new to study EY shows that private companies provide the vast majority of business sector jobs nationwide, 77% of them. State-owned enterprises provide only 23%. Equally important, employment in private companies is distributed evenly across the country, while jobs in public companies tend to be concentrated in a few cities and states. The Democratic bill would accelerate the decline of the less prosperous regions.

So why is a bill presented as requiring billionaires and multinational C corporations to “pay their fair share” targeting family businesses instead? Here is the breakdown:

Passers-by. The bill, drafted by Ways and Means chairman Richard Neal, would raise the maximum rate for private companies; apply the 3.8% net income tax to all of their profits; capping the 20% pass-through deduction that helps family businesses compete with the 21% corporate rate; and impose a new surtax of 3% on their income. That’s 46.4%, 17 points more than what they are currently paying. Mr. Neal claims that only companies making millions would pay this rate. But for family businesses, the 46.4% rate would apply to income as low as $ 500,000.

Private company Cs. Their corporate rate would rise to 26.5%, while the cap rate on capital gains and dividends would rise to 31.8%. Since most shareholders pay taxes on dividends and earnings, the combined rate would be 49.9%, higher than that of a transfer. People ask us why they can’t just convert, and that’s the reason.

Public companies C. Their rate would only increase to 26.5%, and while the rate on capital gains and dividends also increases, most shareholders of state-owned enterprises do not pay taxes, or pay high rates. cuts like retirement accounts and pension funds. The result is that the second tax layer is greatly reduced if it is paid at all. EY estimates that the second layer for SOEs was about eight points, so the combined rate for SOEs C is somewhere in the mid-1930s, about 12 points lower than the rate for private companies.

An interesting result of the EY study is how much public employment varies from state to state and city to city. Public companies account for nearly half of all jobs in Nashville, Tenn., But less than one in 5 jobs in Portland, Oregon. Senate Finance Committee Chairman Ron Wyden may want to take this into account when crafting his alternative to Mr Neal’s bill.

The Neal Bill would hurt private businesses and the workers who depend on them. This would accelerate the consolidation of economic power and decision-making in the top management of a few thousand state-owned enterprises, leaving thousands of communities worse off. The bill is bad for Main Street and bad for the country.

Mr. Reardon is the president of the S Corporation Association and a former White House official on the National Economic Council under President George W. Bush.

Wonder Land: “We have three things to do,” says Joe Biden. “The debt ceiling, the resolution continues and the two laws. We do it, the country will be in great shape.” Images: Disney via Everett Collection / Getty Images Composite: Mark Kelly

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