Budget Reconciliation in Play Allowing Congress to Move Forward with Tax Reform

Wednesday night House Republicans passed the Senate’s budget by a 216-212 vote. In doing so, a critical obstacle toward a major rewrite of the tax code was removed as the budget reconciliation procedural power allowing the Senate to pass a tax bill with just 51 votes is now in play.

In July, PMAA sent a letter to Senate Finance Committee Chairman Orrin Hatch (R-UT) regarding his request for stakeholder comments on overhauling the tax code. One of PMAA’s most critical issues in the tax reform debate is how to treat pass-through businesses. The “framework” for tax reform released a few weeks ago calls for a reduction in the corporate income tax rate from 35 percent to 20 percent, and the creation of a new business tax for pass-through businesses of 25 percent (rather than having their business income taxed at the top individual rate of 39.6 percent) and PMAA strongly supports this change.

PMAA also continues to urge Congress to repeal the Estate Tax, but not to repeal the step-up in basis. Under the current law, family members who inherit a business take the business at its value as of the date of the original owner’s death. However, if the step-up in basis were eliminated, the family members would be required to pay capital gains taxes on the original owners’ gains in the business. In short, rather than bequeathing his or her descendants a legacy, a successful small business owner who grew his or her business from scratch, would be bequeathing his or her descendants a large tax burden, which many families may be unable to pay without selling the business. There is absolutely no reason for the repeal of the estate tax and the repeal of the step-up in basis to go hand in hand. PMAA urges Congress to reject any proposal to eliminate the step-up in basis as doing so would be extremely detrimental to many America’s small businesses.