GOP Tax Writers Eye Tightening Pass-Through Rate Rules

Rep. Peter Roskam (R-Ill.), chairman of the House Ways and Means Subcommittee on Tax Policy. (Alex Wong/Getty Images)

Republican tax writers are considering writing rules into their reform package aimed at preventing large companies from taking advantage of pass-through business tax rates intended for small businesses, Rep. Peter Roskam said Thursday.

Roskam, an Illinois Republican and chairman of the House Ways and Means subcommittee on tax policy, said following a panel hearing on small business taxation that Republicans are “very mindful of some of the concerns in terms of anti-abuse rules on the pass-through treatment.”

People on both sides of the tax reform debate have framed the pass-through structure as a means of easing tax compliance for small businesses, rather than large corporations.

Republicans at the vanguard of the tax reform efforts, including Roskam, have focused on the possible benefits of a special rate to small businesses. During Thursday’s subcommittee hearing, a handful of Democrats said they believe tax reform should avoid cutting rates for large businesses by allowing big companies to take advantage of the pass-through rate.

“Message received,” Roskam said just before ending the hearing. “We need to understand that so that it can’t be manipulated.”

In addition to his comments on pass-through businesses, Roskam suggested that Republicans are interested in finding a way to allow small businesses to deduct interest expenses. The current GOP “blueprint” proposes eliminating corporate interest deductions in exchange for allowing companies access to full tax write-offs for capital investment expenses.

Roskam said that determining how to judge what type of businesses should qualify for a small business interest deduction is still “under consideration.”

“Part of the feedback has been a sensitivity to people who have no access to capital in other forms, and they need to go out and borrow money, and they need to make sure that they’ve got the ability to acquire that,” he said. “There’s a recognition that there’s a special need on the part of somebody who’s just getting out, and the idea that they wouldn’t have that deduction seems like too high of a burden, so let’s fix it for them.”

The hearing that Roskam chaired Thursday — the subcommittee’s first of the 115th Congress — was largely focused on talk about bipartisan agreement on easing tax burdens on small businesses. Partisan friction about issues like pass-throughs bubbled under during the course of the panel.

Rep. Lloyd Doggett of Texas, the subcommittee’s ranking Democrat, said in his opening statement that he thinks lawmakers should “look carefully at the proposals that my Republican colleagues are advancing to ensure that they accomplish the objective that we share in advancing small businesses.”

“Not all those that benefit from pass-throughs are genuinely small businesses,” Doggett noted. “Many of them are connected to Wall Street, to some of the wealthiest people in the country.”