ISSAlert November 27, 2017

Your Action Needed for Equitable Tax Reform

Your immediate action is needed to ensure equitable tax reform legislation is enacted—contact your Senator today—especially if your business is organized as an S-Corporation or other “pass-through” business.

For the first time in decades, tax reform is seriously being considered in our Nation’s Capital as Congress is working to pass tax reform by the end of the year. To learn how the Congressional tax reform proposals will impact your business, please see the detailed analysis prepared exclusively for ISSA members. We will periodically provide you with updates as tax reform progresses.

ISSA supports tax reform that benefits all employers on an equitable basis and which spurs increased domestic investment along with job creation in the U.S.

And now that the Senate is scheduled to work on its version of tax reform this week, ISSA is working to remedy a serious flaw in the Senate’s tax package. Stated simply, some employers will fare better than others under the Senate’s approach to tax reform based on the business’ legal structure.

Specifically, under the Senate tax legislation, businesses organized as S-Corporations (also known as “pass through” companies because the tax liability on the profits passes through to the owners) would be subject to a significantly higher effective tax rate than C-Corporations, placing them at a substantial competitive disadvantage. In fact, many S-Corp would actually be faced with a tax increase if the Senate bill were to become law.

Consider the following inequities in the Senate tax bill:

• The C-Corp tax rate would be cut to 20% for all companies. (Currently, C-Corps have a top tax rate of 35%.)
• However, the top individual/pass-through tax rate would be reduced to only 38.5%. While some pass-through businesses would be eligible for a 17.4% tax deduction that would bring their effective rate down to about 32% , this deduction is subject to significant limitations based on the company’s W-2 wages and the deduction would not be available to all pass-throughs).  
• The C-Corp tax rate of 20% would be permanent; while the pass-through changes would expire at the end of 2025.
• The disallowance of the State and Local income tax deductions under the Senate bill would increase this gap further, raising effective tax rates on pass-through businesses operating in States with income taxes.  

Action Needed.   The Senate will begin debate on its version of tax reform this week, and it is imperative that ISSA members, especially those structured as an S-Corp or other Pass-through business contact their Senators immediately and urge them to address these inequities in the Senate legislation. 

Please call or email your Senators today! 

You can reach your Senators through the Capitol switchboard at 202-225-3121. Once connected to your Senator’s office, ask to speak to the staff person who handles tax reform.

You can also contact your Senators by email through their websites at which can be accessed through www.senate.gov.

In communicating with your Senators on the inequities of the proposed tax treatment of S-Corps and C-Corps, please feel free to use the talking points posted here.