Main Street Responds to House SALT Bill

Yesterday, the Parity for Main Street Employers coalition sent a letter to House tax writers raising serious concerns with their plan to provide temporary relief from the SALT deduction cap by permanently raising the top tax rate applied to pass-through business income.

The bill, titled the “Restoring Tax Fairness for States and Localities Act”, is scheduled to be considered by the House Ways & Means Committee today and voted on by the full House next week.  The bill includes one year of marriage penalty relief and then repeals the SALT cap for two years, all paid for by increasing the top individual income tax rate of 37 percent to 39.6 percent and reducing the dollar amounts at which the 39.6 percent bracket begins.

The PMSE coalition raised serious concerns with the bill, particularly the restoration of the higher top tax rate that applies to pass-through businesses and individuals alike. As the letter states:

Individually and family owned businesses organized as S corporations, partnerships and sole proprietorships are the heart of the American economy. They employ the majority of workers, and they contribute the most to our national income. They also pay the majority of business taxes. A recent study by EY found that pass-through businesses pay 51 percent of all business income taxes.

The legislation introduced today would raise these taxes by 1) increasing the top rate pass-through businesses pay from the current 37 percent to 39.6 percent and 2) lowering the income threshold of the top rate from $622,050 to $496,600 (Joint) for the years 2020 through 2025, after which the 37 percent rate is scheduled to expire under current law.

You can read the whole letter here.

Main Street Hill Briefing

The Parity for Main Street Employers coalition and the S Corporation Association will host a Hill lunch briefing at noon on October 24th in the Kennedy Caucus Room (SR-325).

The briefing is open to Hill staff and tax professionals, and will focus on the pass-through sector and how it has fared under tax reform. Speakers include Senator Steve Daines (MT), Marty Sullivan with Tax Analysts, Bob Carroll with EY, and David Winston with the Winston Group. Box lunches will be provided.

You can see the official event flyer here. To RSVP, please contact us at

Tax Day Message from Main Street Employers

For Tax Day, Parity for Main Street Employers Executive Director Chris Smith’s has an opinion piece in The Hill addressing recent calls for tax increases and highlighting the introduction of The Main Street Tax Certainty Act of 2019 to make the 20 percent pass through deduction permanent.  As the piece argues:

“Tax reform is just over a year old, yet already there are calls to discard it and raise taxes on incomes, estates, capital gains, accumulated wealth, and even financial transactions. It is a veritable tax hike bidding war that overlooks the harm these policies would impose on jobs and wages. The tax code should encourage hard work and success rather than punish it.

“That is why more than a hundred business groups are joining together this week in support of the Main Street Tax Certainty Act of 2019. Sponsored by Representatives Jason Smith and Henry Cuellar, along with Senator Steve Daines, this critical bipartisan legislation would make permanent the 20 percent pass through deduction enacted as part of tax reform…

“Main Street deserves a tax cut instead of a tax hike. The 20 percent pass through deduction is essential to provide tax parity for these employers. By making the deduction permanent, tax reform can fulfill its promise to encourage all employers to succeed in the long term. That is good for all businesses, and it is good for the people in the communities they serve.” 

You can read the full piece here.

Main Street Speaks Up for Permanent Tax Relief Legislation

Today over a hundred business groups released a joint letter in support of the Main Street Tax Certainty Act of 2019.  Sponsored by Representatives Jason Smith (MO), Henry Cuellar (TX) and Senator Steve Daines (MT), this bipartisan legislation would make permanent the 20-percent pass-through deduction enacted as part of tax reform.   All Main Street businesses are at risk of losing the deduction when it is scheduled to expire in 2026.

In addition to Parity for Main Street coalition members, the groups include the U.S. Chamber of Commerce, the National Federation of Independent Businesses, and the American Farm Bureau.

Raising taxes on Main Street was not the intent of Congress when they enacted tax reform, and it shouldn’t be our policy now.  To avoid that bad outcome, Congress needs to make Section 199A permanent.  As the support expressed by such a broad cross section of the American business community attests, the economic benefits of providing certainty to Main Street businesses would also be widespread.

Also posted today was a new “whiteboard” video designed by the Parity for Main Street Employer coalition to illustrate the impact and challenges from tax reform for pass-through businesses.

PMSE Releases New Legal Anaylsis Supporting SALT Parity for Pass-Through Businesses

Analysis Paves Way for Other States to Act

The Parity for Main Street Employers coalition of national trade groups today released a new analysis by the Wisconsin-based law firm Meissner Tierney Fisher & Nichols highlighting the legal basis for state efforts to preserve the federal deduction for state and local taxes (SALT) for employers organized as pass-throughs.

To date, two states (Wisconsin and Connecticut) have adopted new laws that would effectively restore the federal deduction for SALT paid by businesses organized as S corporations and partnerships, while two other states (Arkansas and Oklahoma) are actively considering similar bills.

Recent news stories have cast doubt on these efforts by raising the specter of possible action by the IRS to invalidate the new laws.  At issue is whether taxes paid by pass-through entities are subject to the new $10,000 deduction cap that applies to individual taxpayers.

The analysis released today addresses these concerns by making a strong legal case for the deductibility of the new entity-level tax enacted in Wisconsin. It summarizes:

State income taxes paid by S corporations and partnerships, limited liability companies and other entities… should not be subject to the new $10,000 state tax deduction limitation under section 164(b)(6) of the Internal Revenue Code…. The Internal Revenue Service (the “Service”) has consistently held that income and other taxes imposed upon and paid by pass-through entities are simply subtracted in calculating nonseparately computed income at the entity level, and are not separately passed through or incorporated into the various provisions and calculations applicable to itemized deductions at the individual level, such as the standard deduction, alternative minimum tax and the Pease reduction. In discussing the final provisions of the Tax Cuts and Jobs Act, the Conference Committee Report explicitly reiterated and relied upon this principle in describing the scope of new section 164(b)(6) of the Code.

While the analysis focuses on the new Wisconsin law, its findings are relevant to Connecticut and other states considering similar legislation.

PMSE Statement on Final Treasury Pass-Through Deduction Regulations

Chris Smith, PMSE Executive Director

“A Section 199A deduction that applies broadly to Main Street Employers organized as passthroughs is essential to maintain parity with C corporations and the new 21-percent rate. While the final rules provide some additional clarity, the Treasury chose not to adopt recommendations of the Main Street community on important issues, including aggregation and de minimis rules.”

“The economic response to tax reform has been relatively muted in part because the tax relief targeted at pass-through businesses – who employ the majority of private sector workers — is complicated, limited, and temporary. This was a missed opportunity to simplify and broaden that relief.”

“To maximize tax reform’s impact, 199A should be amended to be broader, simpler, and permanent. We stand ready to work with Congress to provide the tax relief that Main Street employers and workers deserve.”

Main Street Employers Coalition Comments on Proposed Section 199A Rules

Welcomes Guidance on Main Street Deduction – Suggests Improvements

Today, the Parity for Main Street Employers coalition of national trade groups submitted comments to Treasury and the IRS in response to the notice of proposed rule-making on the qualified business income deduction under Section 199A.

PMSE commends Treasury for crafting rules that will help Main Street businesses get the pass-through deduction Congress intended. To improve the rules, PMSE recommends that Treasury streamline the test for aggregating trades or businesses by dropping the “majority ownership” requirement and eliminating the requirement that all aggregated trades or businesses use the same tax year.

You can read the full press release here.

PMSE Supports Pass-Through Deduction Permanence

The Parity for Main Street Employers coalition today wrote the Ways and Means Committee in support of making the 199A pass-through deduction permanent.  The provision is part of the Committee’s “Tax Reform 2.0” effort being debated by the Committee.

Making the Section 199A permanent is a key part of the PMSE coalition agenda in the coming years, and a critical component of making sure the tax reform effort as successful as possible.  As the letter says:

The American economy is growing at a remarkable pace, thanks in large part to tax reform and its focus on reducing taxes on employers and employees alike. But continuation of this growth is at risk because the centerpiece of tax relief for Main Street – the 20 percent pass-through deduction – is temporary and is scheduled to expire in a few years. Business needs certainty to plan and grow.

The 20 percent pass-through deduction is critical for the success of Main Street employers. Businesses organized as S corporations, partnerships and sole proprietorships comprise 95% of American companies, employ the majority of American workers, and are a vital part of the American economy. Making this deduction permanent will help put these businesses on a more level playing field with publicly trade C corporations and help them to fully contribute to economic expansion.

You can read the full letter here.

Statement on Treasury 199A Regulations

By Chris Smith

“The Parity for Main Street Employers Coalition welcomes Treasury’s guidance applying the new 20% tax deduction to thousands of U.S. businesses organized as pass-throughs—the S-corps, sole proprietorships, and partnerships that comprise 95% of all businesses and who employ the majority of American workers.

“Importantly, the proposed rules permit many business owners to aggregate–or group–their business units for purposes of the deduction. Applying the deduction broadly helps put Main Street businesses on a more level playing field with public companies traded on Wall Street.

“This is only the start of the process, and we look forward to reviewing the specifics of the proposed rule in greater detail to ensure that the final rules apply the deduction as broadly as possible, while minimizing compliance burdens. And it is essential for Congress to make the deduction permanent.”

New EY Study Shows Why Pass-Through Deduction Should Be Broad, Permanent

Parity for Main Street Employers

Today, PMSE released an analysis by EY of the Tax Cut and Jobs Act’s effect on the taxation of pass-through businesses, with a focus on S corporations.  The EY study found that even for businesses getting a full 20-percent deduction, the tax rate on pass-throughs is still higher than for the average C corp.  This is especially true after the deduction expires in 2026.  That’s why it is essential that the deduction applies as broadly as possible, and that Congress makes the deduction permanent.  A copy of the full EY study can be found here.

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