ATR President Grover Norquist today sent the following letter to the U.S. House of Representatives:
On behalf of Americans for Tax Reform, I am pleased to support H.R. 9, the “Small Business Tax Cut Act.” This bill would give small and medium-size employers a tax cut equal to 20 percent of the profits from their businesses.
H.R. 9 creates a new effective top tax rate of 28 percent on small and mid-size firms. By cutting their top rate from 35 to 28 percent, H.R. 9 recognizes that hiring and investment decisions in businesses are made at the margin. When the marginal tax rate on profits is reduced, it encourages firms to expand production, hire new staff, and engage in new business ventures.
Small employers pay their taxes using the individual tax rates. Most small and mid-sized businesses are organized as S-corporations, partnerships, LLCs, or sole proprietorships. They don’t pay the corporate income tax. Rather, their profits flow through to their owners’ personal tax returns, where they then face taxation. Thus, the tax rate on individuals is also the tax rate on most businesses in America.
The majority of small and mid-size employer profits face taxation at the top marginal tax rate. IRS data shows that the marginal tax rate at which most “flow-through” business profits pay tax is the top individual income tax rate of 35 percent. By de facto cutting this rate to 28 percent for these profits, H.R. 9 will create a better business environment for these employers.
I would encourage all pro-taxpayer Members of Congress to support H.R. 9.