On Wednesday President Trump announced his bold new tax plan that is supposed to help the middle class. However, what it has done is create fantastic loopholes for his companies and the rich. Not only is he reducing the corporate tax reduction, he is easing rates on LLCs, S corporations, and “pass-through” businesses. Think Progress reports:
More troubling than Trump’s corporate tax reduction, though, is that the plan applies this rate not just to traditional corporate entities, but also to firms known as pass-through businesses such as law firms, hedge funds, and real estate companies. These companies — including LLCs, partnerships, and S corporations — currently pay taxes through the individual code because their money shows up on owners’ own returns.
Some of these are small, but they also include enormous companies, like much of the Trump Organization itself. Pass-through business income flows mostly to high earners: 70 percent of income made by partnerships and S corporations is captured by the richest 1 percent of Americans. In 2012, 40 percent of all S corporation income was made by firms worth more than $50 million, while 70 percent of partnership income went to a similarly sized group.
Allowing these companies to pay a 15 percent rate, and not the higher rates in the individual code for well-off taxpayers, would be an big and very profitable loophole for them. Only income below $37,950 a year is currently taxed at 15 percent or less. But anyone who makes their income as a pass-through entity would enjoy that rate no matter how much they made.
It would, therefore, be difficult to ensure that individuals don’t incorporate as pass-through businesses to reap the rewards of such a lower tax rate. On Wednesday, Treasury Secretary Steven Mnuchin promised, “We will make sure there are rules in place so that wealthy people can’t create pass-throughs” and thus avoid the personal income rates. But Congress has already had difficulty policing pass-through business taxation.As an example from the Center on Budget and Policy Priorities of how enticing this can be, a lawyer earning a $1 million salary could incorporate as a pass-through business and thus save $180,000 in taxes under Trump’s proposal.
So Trump’s tax proposal is exactly what we expected a thumbs up to the rich and the snub to the working man. Thanks, middle America this one is on you.
Source: Think Progress