a day ago
- Business
- Wall Street Journal
Close the SALT ‘Loophole'? Not on My Watch
In 2017, the Tax Cuts and Jobs Act as originally drafted by the House targeted most of its cuts to the 5% of American businesses organized as C-Corps. I was the Republican senator who dug his heels in and insisted that the other 95% of American businesses organized as 'pass-through' entities be treated more fairly so they could stay competitive with C-Corps. I also worked with Wisconsin legislators to ensure our state's pass-throughs could deduct state and local taxes at the entity level, the same way C-Corps do. Your editorial recommends 'Closing the SALT Business Loophole' (June 25). But that's a misnomer—the provision maintains competitive fairness between businesses that choose to organize differently.
Eight years ago you argued that pass-throughs enjoy a tax advantage because they don't suffer from the double taxation of dividends. The problem is that companies compete at the entity, not shareholder, level and approximately 73% of C-Corp income is attributed to nontaxable entities and never subjected to double taxation. I estimate that this reduces federal revenue by approximately $200 billion annually. Moreover, according to the Joint Committee on Taxation, in 2020 the effective tax rate was 10% for large C-Corps and 14% for small C-Corps, compared with an average 21% for all pass-throughs in 2021.
