This story is free to read because readers choose to support LAist. If you find value in independent local reporting, make a donation to power our newsroom today.
This archival content was originally written for and published on KPCC.org. Keep in mind that links and images may no longer work — and references may be outdated.
Would GOP tax plan help CA small businesses?
\House Way and Means Chairman Kevin Brady (L) (R-TX) and Speaker of the House Paul Ryan (R) (R-WI), joined by members of the House Republican leadership, introduce their tax reform legislation on Thursday.
(
Win McNamee/Getty Images
)
Listen
0:54
Would GOP tax plan help CA small businesses?
Congressional Republicans say one way their tax plan would help small businesses is through cuts for entities known as pass-throughs. But Los Angeles tax experts are mixed on how the GOP's proposed changes could affect these kinds of companies.
Unlike big corporations that pay corporate taxes, pass-throughs are entities that pass their income on to their owners, who then pay taxes on it as individuals.
Almost all U.S. businesses are pass-throughs — about 95 percent of them, according to the Brookings Institution. They include everything from law firms to family dentists to tech startups, according to LA-based PwC tax partner Sam Melehani.
"In the greater Southern California market, I'm starting to see a lot of businesses set themselves up as pass-through entities," he says.
Currently, if pass-through owners earn a lot, they can end up in the top tax bracket for individuals — 39 percent. But under the GOP plan, the rate on pass-through income could be as low as 25 percent.
The bill includes complex rules aimed at preventing the wealthy from using this cut to massively slash their taxes. But Loyola Law School professor Ted Seto says the proposal isn't foolproof.
"Whenever you come up with a completely different way of doing something, you very commonly don't see the holes in it," he says. "There are a lot of holes in this."
Sponsored message
Seto says the provision wouldn't actually help mom and pop operations. He calls the talk about giving small businesses a big tax break "an intentionally misleading characterization."
He says most small business owners already pay well below the proposed 25 percent tax rate for pass-through business income.
Melehani says it's unclear whether small businesses would benefit from the proposed change to the pass-through rules.
He says another proposal in the GOP plan — getting rid of the alternative minimum tax (AMT) — could help certain small business owners.
You come to LAist because you want independent reporting and trustworthy local information. Our newsroom doesn’t answer to shareholders looking to turn a profit. Instead, we answer to you and our connected community. We are free to tell the full truth, to hold power to account without fear or favor, and to follow facts wherever they lead. Our only loyalty is to our audiences and our mission: to inform, engage, and strengthen our community.
Right now, LAist has lost $1.7M in annual funding due to Congress clawing back money already approved. The support we receive from readers like you will determine how fully our newsroom can continue informing, serving, and strengthening Southern California.
If this story helped you today, please become a monthly member today to help sustain this mission. It just takes 1 minute to donate below.
Your tax-deductible donation keeps LAist independent and accessible to everyone.
Right now, LAist has lost $1.7M in annual funding due to Congress clawing back money already approved. The support we receive from readers like you will determine how fully our newsroom can continue informing, serving, and strengthening Southern California.
If this story helped you today, please become a monthly member today to help sustain this mission. It just takes 1 minute to donate below.
Your tax-deductible donation keeps LAist independent and accessible to everyone.
Senior Vice President News, Editor in Chief
