H.R.3275 - Small Business Tax Relief Act (119th Congress)
Summary
H.R.3275, the Small Business Tax Relief Act, proposes amendments to the Internal Revenue Code of 1986. The bill aims to lower the corporate tax rate for small businesses with taxable income under $5,000,000, setting a graduated rate of 18% on income up to $400,000 and 21% on income exceeding that amount. It also targets the carried interest loophole by modifying the treatment of partnership interests and imposing special rules for partners providing investment management services.
Expected Effects
If enacted, the bill would reduce the tax burden on small businesses, potentially stimulating economic activity. Closing the carried interest loophole could increase tax revenue from investment partnerships. This may lead to changes in investment strategies and compensation structures within the financial sector.
Potential Benefits
- Reduced Tax Burden for Small Businesses: Lower corporate tax rates for small businesses could free up capital for investment and expansion.
- Increased Tax Revenue from Investment Partnerships: Closing the carried interest loophole could generate additional tax revenue.
- Fairer Taxation: Addressing the carried interest loophole could be perceived as making the tax system fairer by taxing investment income at ordinary income rates.
- Incentive for Investment in Small Businesses: The lower tax rate may incentivize investment in small businesses, fostering growth and job creation.
- Enhanced Deduction for Self-Employed: Lower income self-employed individuals get a larger deduction.
Most Benefited Areas:
Potential Disadvantages
- Complexity: The new rules for partnership interests and investment management services could add complexity to the tax code.
- Potential for Tax Avoidance: Investment partnerships may seek alternative compensation structures to avoid the new rules.
- Uncertainty: The regulations needed to implement the carried interest provisions could create uncertainty for investment partnerships.
- Increased Excise Tax: The increase in the excise tax on stock repurchases could reduce the incentive for companies to buy back their own stock, potentially affecting shareholder value.
- Economic Distortion: The changes to carried interest could distort investment decisions, as managers seek to avoid the new tax rules.
Constitutional Alignment
The bill aligns with Congress's power to lay and collect taxes, duties, imposts, and excises as outlined in Article I, Section 8, Clause 1 of the Constitution. The proposed changes to the tax code fall within the scope of Congress's legislative authority. The bill does not appear to infringe upon any specific constitutional rights or protections.
Impact Assessment: Things You Care About ⓘ
This action has been evaluated across 19 key areas that matter to you. Scores range from 1 (highly disadvantageous) to 5 (highly beneficial).