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Biden Plan Protects 97% of Small Businesses From Income Tax Hikes: Treasury

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What You Need to Know

  • The vast majority of small-business owners don't pay corporate taxes.
  • Raising income taxes on top earners would affect less than 3% of small-business owners, according to a Treasury analysis.
  • Expanded tax credits for parents and people who buy health coverage through HealthCare.gov are helping millions of small-business owners, the White House says.

President Joe Biden’s Build Back Better agenda will protect 97% of small-business owners from income tax rate increases, according to a new Treasury Department analysis cited Thursday in a White House fact sheet.

Meanwhile, the American Rescue Plan gave 3.9 million entrepreneurs a tax cut, the White House said, citing expanded tax credits for parents and for buying health insurance.

The Treasury analysis follows charges from Republicans in Congress, citing the Joint Committee on Taxation, that the corporate tax hike would hurt retirees and small businesses.

Biden’s plan, in the words of the fact sheet, will:

  • Raise the corporate income tax rate to 28%;
  • Strengthen the global minimum tax for large multinational corporations;
  • Reduce incentives for foreign jurisdictions to maintain ultra-low corporate tax rates by encouraging global adoption of robust minimum taxes for large corporations;
  • Enact a 15% minimum tax on book income of large, highly profitable corporations;
  • Eliminate incentives for large corporations to offshore profits and jobs; and
  • Ramp up enforcement to address tax avoidance among large corporations

Treasury points out that a corporate tax hike “would not affect any small businesses that file taxes as a passthrough entity (LLCs, S-corps, and sole proprietorships).”

There are more than 30 million small businesses in the U.S., according to the Small Business Administration. The U.S. Chamber of Commerce, which opposes the tax hike, says there are 1.4 million small businesses organized as C-corps, which are subject to the corporate tax.

The 2017 tax overhaul cut the corporate tax rate from 35% to 21%.

Biden’s proposal “to restore the top income tax bracket to its pre-2018 level — which would only raise taxes by 2.6 percentage points for the wealthiest households in America — would affect less than 3% of small-business owners,” states Treasury’s new analysis, which focused exclusively on small businesses filing as S-corporations, partnerships, and on individual income tax return Form 1040 Schedules C, E and F.

Health Insurance

Small-business owners who buy coverage through HealthCare.gov will also see their taxes decrease, the fact sheet notes.

“Prior to the Affordable Care Act, small business owners and their employees were overrepresented among uninsured working Americans. Today, they represent more than half of all Americans enrolled in the ACA marketplaces,” the fact sheet states.

Biden’s American Rescue Plan provided tax credits that lowered health insurance premiums for those buying coverage through the ACA, saving families an average of $50 per person per month.

“Since the ARP went into effect, 34% of consumers have found coverage for $10 or less per month on HealthCare.gov,” the fact sheet states. “The Build Back Better Agenda will make these premium reductions permanent.”

The result: 9 million people — including more than 1.2 million small business owners — will continue to save hundreds of dollars per year on their premiums, and 4 million uninsured people will gain coverage, according to the fact sheet.