Washington Examiner: Congressional Republicans confident they can avoid massive loophole in Trump tax plan

This story first appeared in the April 28, 2017 edition of the Washington Examiner and quotes alliantgroup National Managing Director Dean Zerbe.

Republican taxwriters say they are confident that they can legislate around a loophole that Democrats say they have identified in President Trump’s tax plan, namely that it would cut taxes for Trump’s own company and lead rich professionals to game the tax code by claiming to be small businesses.

Under scrutiny is the Trump proposal for a special tax rate of 15 percent for businesses that file taxes through the individual side of the tax code, commonly referred to as pass-throughs. While the idea could pose one of the major substantive policy obstacles to Republican tax reform, congressional leaders projected confidence they could surmount it.

The proposal is a big deal. Pass-throughs, such as partnerships, sole proprietorships and S-Corporations, account for the majority of employment in the U.S., and the special rate would cut taxes by about $1.5 trillion over a decade, according to one outside analysis of Trump’s similar campaign plan.

While it would benefit many small businesses, Democrats were quick to point out that it also would represent a tax cut for many big businesses, including Trump’s, and would encourage large-scale gaming of the tax code by lawyers, athletes or other professionals in a position to declare their earnings business income rather than salaries.

“Wealthy businessmen, like President Trump, will be able to use pass-through entities to pay 15 percent in taxes while everyone else pays in the 20 percents and 30 percents,” said Senate Democratic Leader Charles Schumer while speaking Thursday on the Senate floor.

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sb-d-zerbe[1]Dean Zerbe is alliantgroup’s National Managing Director based in the firm’s Washington, D.C. office. Prior to joining alliantgroup, Zerbe was Senior Counsel and Tax Counsel to the U.S. Senate Committee on Finance. He worked closely with then-Chairman of the Finance Committee, Senator Charles Grassley, on tax legislation. During his tenure on the Finance Committee, Zerbe was intimately involved with nearly every major piece of tax legislation that was signed into law, including the 2001 and 2003 tax reconciliation bills, the JOBS bill in 2004 (corporate tax reform) and the Pension Protection Act. Zerbe is a frequent speaker and author on the outlook for short-term and long-term changes in tax policy, as well as ways accounting firms can help their clients lower their tax bill.