Hatch: JCT Analysis “Irrefutable Proof” of Need to Prevent Massive End of Year Tax Hikes

Nonpartisan Official Congressional Tax Scorekeeper Finds that 53 Percent of Flow-Through Business Income Would be Hit with President’s Proposed Tax Increase, Up from 50 Percent Two Years Ago

WASHINGTON – Today, U.S. Senator Orrin Hatch, Ranking Member of the Senate Finance Committee, released an analysis by the nonpartisan Joint Committee on Taxation (JCT) that found that the amount of flow-through business income that would be subject to President Obama’s proposed tax hike has increased from 50 percent in 2011 to 53 percent in 2013, with the number of entities subject to the tax increase going up from under 750,000 in 2011 to approximately 940,000 in 2013.

“This independent analysis is further irrefutable proof of why we simply cannot allow the President to have his way by raising taxes on small business,” said Hatch.  “With our economy as weak as it is, it makes absolutely no sense to hit more and more small businesses with a tax hike.  I’ve said it before, and I’ll say it again, let’s stop the looming massive tax increases that are set to hit nearly every tax paying American on January 1st and move forward together to reform the tax code in a manner that spurs economic growth.”

The proposed tax increase on 53 percent of all flow-through business income is especially harmful to small businesses, because the vast majority of small businesses are organized as flow-through entities, such as partnerships, limited liability companies (LLCs), S Corporations, and sole proprietorships.  These businesses are referred to as flow-through entities because the business income flows-through onto the business owner’s individual tax returns.

In its findings, JCT “…estimates that in 2013 approximately 940,000 taxpayers with net positive business income…will have marginal rates of 36 or 39.6 percent under the President’s proposal, and that 53 percent of the approximately $1.3 trillion of aggregate net positive business income will be reported on returns that have a marginal rate of 36 to 39.6 percent.” 

In 2010, JCT found that 50 percent of flow-through business income would be impacted:  “The staff of the Joint Committee on Taxation estimates that in 2011 just under 750,000 taxpayers with net positive business income (three percent of all taxpayers with net positive business income) will have marginal rates of 36 or 39.6 percent under the President’s proposal, and that 50 percent of the approximately $1 trillion of aggregate net positive business income will be reported on returns that have a marginal rate of 36 or 39.6 percent.”

In May, Hatch led a letter to Senate Majority Leader Harry Reid (D-Nev.) urging him to start working with Republicans to prevent these massive tax hikes given the impact on the economy.  The Congressional Budget Office (CBO) found that if these tax hikes are not prevented that the economy could be pushed into another recession. 

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