Bill Overview
Title: Small Business Tax Relief Act
Description: This bill establishes a graduated corporate tax rate for corporations whose taxable income does not exceed $5 million. The rate of such tax is 18% of taxable income not exceeding $400,000, and 21% of taxable income that equals or exceeds $400,000. The bill also modifies the tax treatment of carried interest, which is compensation that is typically received by a partner of a private equity or hedge fund and is based on a share of the fund's profits. (Under current law, carried interest is taxed as investment income rather than at ordinary income tax rates.) The bill includes provisions that set forth a special rule for the inclusion in gross income of partnership interests transferred in connection with the performance of services, treat as ordinary income the net capital gain with respect to an investment services partnership interest except to the extent such gain is attributable to a partner's qualified capital interest, exempt income from investment services partnership interests from treatment as qualifying income of a publicly traded partnership, exempt certain family partnerships from the application of this bill, increase the penalty for underpayments of tax resulting from failure to treat income from an investment services partnership interest as ordinary income, and include income and loss from an investment services partnership interest for purposes of determining net earnings from self-employment and applicable self-employment taxes. The bill defines investment services partnership interest as any interest in a partnership held by a person who provides services to a partnership by (1) advising the partnership about investing in, purchasing, or selling specified assets; (2) managing, acquiring, or disposing of specified assets; or (3) arranging financing with respect to acquiring specified assets.
Sponsors: Rep. Craig, Angie [D-MN-2]
Target Audience
Population: Small business owners and investment service partners
Estimated Size: 9000000
- Small businesses with taxable income not exceeding $5 million will be impacted since the bill introduces a new corporate tax rate for these businesses.
- The change in the treatment of carried interest will affect partners in private equity and hedge funds as it alters how their compensation is taxed.
- The bill affects partners in partnerships that provide services related to investments (investment services partnerships), changing how their income is treated for tax purposes.
- The inclusion of income from investment services partnership interests for self-employment taxes purposes will impact individuals in these roles, affecting their tax liabilities.
Reasoning
- The main beneficiaries of the tax relief in the Small Business Tax Relief Act are small business owners with taxable income not exceeding $5 million, which makes up a substantial portion of U.S. small businesses. That said, many small businesses do not reach that level of taxable income so the impact will vary greatly among them.
- Partners in private equity and hedge funds will face increased tax liabilities due to the change in carried interest taxation.
- Both types of affected individuals and businesses reside across various demographic and geographical distributions, leading to specific anecdotal perspectives which need individual exploration.
- Due to the specific nature of the policy, there will be a notable portion of the population including larger corporations and employees unaffiliated with investment services partnerships who experience no impact from this legislation.
Simulated Interviews
Small business owner (San Francisco, CA)
Age: 45 | Gender: male
Wellbeing Before Policy: 6
Duration of Impact: 5.0 years
Commonness: 3/20
Statement of Opinion:
- The new tax rates will help improve my cash flow, which can be reinvested into my business.
- Increased investment in the business could lead to growth and potential job creation.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 6 |
| Year 2 | 7 | 6 |
| Year 3 | 8 | 6 |
| Year 5 | 8 | 6 |
| Year 10 | 8 | 6 |
| Year 20 | 7 | 6 |
Hedge fund manager (New York, NY)
Age: 33 | Gender: female
Wellbeing Before Policy: 7
Duration of Impact: 10.0 years
Commonness: 8/20
Statement of Opinion:
- Being taxed at ordinary income rates will significantly impact my annual take-home pay.
- This could lower my incentive to stay in the current role.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 5 | 7 |
| Year 2 | 5 | 7 |
| Year 3 | 5 | 7 |
| Year 5 | 5 | 7 |
| Year 10 | 4 | 7 |
| Year 20 | 5 | 7 |
Tax accountant (Austin, TX)
Age: 40 | Gender: male
Wellbeing Before Policy: 6
Duration of Impact: 5.0 years
Commonness: 9/20
Statement of Opinion:
- I see this as a positive change for my clients, encouraging more small businesses to take advantage of tax savings.
- My personal taxes aren't affected, but increased business might improve my own income indirectly.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 6 |
| Year 2 | 6 | 6 |
| Year 3 | 6 | 6 |
| Year 5 | 7 | 6 |
| Year 10 | 7 | 6 |
| Year 20 | 7 | 6 |
Private equity analyst (Chicago, IL)
Age: 29 | Gender: female
Wellbeing Before Policy: 5
Duration of Impact: 0.0 years
Commonness: 10/20
Statement of Opinion:
- I appreciate the policy for its intent, but it doesn't directly affect my current income.
- Eyewitnessing the impact on my senior colleagues gives me mixed feelings about long-term career prospects.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 5 | 5 |
| Year 2 | 5 | 5 |
| Year 3 | 5 | 5 |
| Year 5 | 5 | 5 |
| Year 10 | 5 | 5 |
| Year 20 | 5 | 5 |
Restaurant owner (Miami, FL)
Age: 50 | Gender: male
Wellbeing Before Policy: 5
Duration of Impact: 3.0 years
Commonness: 7/20
Statement of Opinion:
- The tax savings will provide some breathing room, allowing for easier operational improvements.
- I'm cautious about how long the relief will last, given my income marginally qualifies.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 5 |
| Year 2 | 6 | 5 |
| Year 3 | 6 | 5 |
| Year 5 | 5 | 5 |
| Year 10 | 5 | 5 |
| Year 20 | 5 | 5 |
Freelance financial advisor (Seattle, WA)
Age: 38 | Gender: female
Wellbeing Before Policy: 6
Duration of Impact: 8.0 years
Commonness: 5/20
Statement of Opinion:
- The change in partnership income affects my returns, increasing my tax liability.
- This might deter me from staying in a partnership arrangement long-term.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 5 | 6 |
| Year 2 | 5 | 6 |
| Year 3 | 5 | 6 |
| Year 5 | 6 | 6 |
| Year 10 | 6 | 6 |
| Year 20 | 5 | 6 |
Retired (Rural Alabama)
Age: 62 | Gender: other
Wellbeing Before Policy: 5
Duration of Impact: 0.0 years
Commonness: 8/20
Statement of Opinion:
- The policy does not directly affect me, but I have concerns about how border tax impacts could reach us rural folks.
- Policy changes often hurt more when support systems don't reach isolated areas.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 5 | 5 |
| Year 2 | 5 | 5 |
| Year 3 | 5 | 5 |
| Year 5 | 5 | 5 |
| Year 10 | 5 | 5 |
| Year 20 | 5 | 5 |
Fashion boutique owner (Los Angeles, CA)
Age: 51 | Gender: male
Wellbeing Before Policy: 6
Duration of Impact: 5.0 years
Commonness: 7/20
Statement of Opinion:
- The tax savings seem minimal compared to operational costs in my location.
- It's a step in the right direction but doesn’t neutralize competitive disadvantages in high-cost regions.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 6 |
| Year 2 | 6 | 6 |
| Year 3 | 6 | 6 |
| Year 5 | 6 | 6 |
| Year 10 | 6 | 6 |
| Year 20 | 6 | 6 |
Tech firm CEO (Boston, MA)
Age: 35 | Gender: female
Wellbeing Before Policy: 8
Duration of Impact: 0.0 years
Commonness: 6/20
Statement of Opinion:
- My business just misses the benefit cut-off for lower taxes.
- This policy doesn't motivate changes within my operations unless revenues lower.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 8 |
| Year 2 | 8 | 8 |
| Year 3 | 8 | 8 |
| Year 5 | 8 | 8 |
| Year 10 | 8 | 8 |
| Year 20 | 8 | 8 |
Self-employed contractor (Denver, CO)
Age: 47 | Gender: male
Wellbeing Before Policy: 4
Duration of Impact: 7.0 years
Commonness: 5/20
Statement of Opinion:
- The relief in taxes directly helps my cash flow, which determines how many hires I can sustain over lean months.
- Especially helpful with the rising cost of materials.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 5 | 4 |
| Year 2 | 5 | 4 |
| Year 3 | 6 | 4 |
| Year 5 | 6 | 4 |
| Year 10 | 5 | 4 |
| Year 20 | 5 | 4 |
Cost Estimates
Year 1: $5700000000 (Low: $5000000000, High: $6500000000)
Year 2: $5700000000 (Low: $5000000000, High: $6500000000)
Year 3: $5700000000 (Low: $5000000000, High: $6500000000)
Year 5: $5700000000 (Low: $5000000000, High: $6500000000)
Year 10: $5700000000 (Low: $5000000000, High: $6500000000)
Year 100: $5700000000 (Low: $5000000000, High: $6500000000)
Key Considerations
- The cost estimates account for the initial adjustment businesses and individuals might undergo due to tax structure changes.
- Estimates consider varying compliance levels with revised tax codes and enforcement efficacy.