Senate Bill’s Passthrough Treatment Concerning, Trade Groups Say

November 27, 2017

The Honorable Orrin Hatch
Chairman, Committee on Finance
United States Senate
219 Dirksen Senate Office Building
Washington, D.C. 20510

Dear Chairman Hatch:

The undersigned trade associations support tax reform that benefits all employers and results in increased investment and job creation here in the United States. To that end, we share the concerns raised by a number of Senators regarding the treatment of pass through businesses in the proposed Senate reform.

While the bill's 17.4 percent deduction is a welcome effort to lower rates on all pass-through businesses, the provision is both temporary and too low. The deduction's 50-percent payroll limitation would leave behind pass-through businesses that do not add direct payroll at a one-to-one ratio as they grow while blocking trust and estate income from the deduction would hurt multi-generation family businesses. The fraction of pass-through businesses that do get the full deduction would be subject to a 32 percent effective marginal rate, well short of the 25 percent rate forecast in the Framework and significantly higher than the 20 percent rate applied to C corporations.

The disallowance of the State and Local income tax deduction would increase this gap further, raising effective tax rates on pass-through businesses operating in States with income taxes. Meanwhile, the proposed limitation on a businesses' ability to deduct active pass-through losses would discourage entrepreneurial activity, business formation and investment, as would the exclusion of pass-through businesses from the new, territorial regime on international income.

As a result of these provisions and others, we are concerned that the Senate bill would increase the tax burden on many pass-through businesses relative to current law, while the bill's rate disparity with C corporations creates a significant competitive disadvantage for many more.

As the Senate continues to refine its proposal, we encourage you to address the concerns expressed by the pass-through community and its representatives, and modify the legislation to ensure that it spurs investment, jobs and economic growth by all forms of business.

We look forward to continuing to work with you towards the common goal of tax reform that benefits all America's job creators.

Sincerely:

Air Conditioning Contractors of America (ACCA)

American Supply Association

American Veterinary Distributors Association

Associated Builders and Contractors

Associated Equipment Distributors

Associated General Contractors of America

The Association of Union Constructors (TAUC)

The American Institute of Architects

Auto Care Association

Convenience Distribution Association

Door and Hardware Institute

Door Security & Safety Foundation

Energy Equipment & Infrastructure Alliance

Equipment Dealers Association

Heating, Air-conditioning & Refrigeration Distributors International (HARDI)

Independent Community Bankers of America

Independent Electrical Contractors

International Foodservice Distributors Association

International Franchise Association

International Warehouse Logistics Association

Irrigation Association

ISSA — The Worldwide Cleaning Industry Association

Mechanical Contractors Association of American (MCAA)

Metals Service Center Institute

National Apartment Association

National Association of Electrical Distributors

National Association of Wholesaler-Distributors

National Beer Wholesalers Association

National Electrical Contractors Association (NECA)

National Grocers Association

National Marine Distributors Association

National Multifamily Housing Council

National Roofing Contractors Association

Outdoor Power Equipment & Engine Service Association

Pet Industry Distributors Association

Petroleum Equipment Institute

Printing Industries of America

The Real Estate Roundtable

S Corporation Association

Secondary Materials and Recycled Textiles Association

Sheet Metal and Air Conditioning Contractors' National Association (SMACNA)

Textile Care Allied Trades Association