ASA Responds to President Biden’s Proposed Small Business Tax Increases

Last Thursday, President Biden presented his proposed FY24 Budget, which included tax increases that will directly impact the pass-through business community.  To that end, ASA, along with the Main Street Partnership, called upon the House Budget Committee to strongly oppose it.  Per their letter, “the President claims his budget will only go after ‘super-wealthy’ tax cheats, yet it targets over one million small and family-owned businesses. The taxes proposed in the President’s budget would disproportionately impact these businesses, and adversely affect their ability to hire new employees, offer better benefits, and invest in new equipment and technology necessary to sustain their businesses and help them grow. While the President characterizes these tax proposals as ‘closing a loophole,’ America’s small and family-owned businesses are not a loophole.”

The huge deficits forecasted in the President’s budget are not the result of a revenue shortage. The Congressional Budget Office (CBO) reports that federal tax collections were nearly $5 trillion last year, a record high and a 47-percent increase from when the Tax Cuts and Jobs Act was enacted in 2017. The taxes paid by individuals and pass-through businesses reached a record $2.6 trillion.  Despite this, the President’s budget would raise the top rates paid by pass-through businesses and corporations alike, expand the Net Investment Income Tax to cover the active business income of pass-through business owners, nearly double the tax rate on capital gains, and impose a new minimum tax on larger family businesses that appears to redefine how income is measured. The result would raise top tax rates on these businesses to close to 50 percent, both on their operating profits and on any gain when they sell the company.

However, the tax proposals contained in the President’s budget should not be considered in a vacuum. When combined with other proposals from President Biden, as well as proposals supported by the Chairman of the Senate Finance Committee and Ranking Member of the House Ways and Means Committee, the top marginal tax rate for active small and family-owned businesses would increase from 29.6 percent to a staggering 57 percent, compared to the top tax rate for C corporations of 21 percent.

Furthermore, these businesses will see a massive tax increase when the small and family-owned business deduction, the lower individual rates, and other individual provisions expire beginning in 2026. The tax hikes proposed in the budget release would come on top of these pending tax increases, adding to the uncertainty our members face.

Finally, instead of seeking ever higher taxes from the pass-through business sector, the Administration should work with Congress to make the small and family-owned business deduction permanent and provide these business owners with a little certainty following three years of COVID, recession, high inflation, and supply-chain disruptions.