MSGA Signs Coalition Letter Opposing a Small Business Tax Increase

Via U.S. Chamber of Commerce

This Coalition letter was sent by the Associated General Contractors, opposing a potential expansion of the 3.8 percent Net Investment Income Tax (NIIT) to include the incomes of S corporations and partnerships where the owners actively manage the business. This increase would specifically target small and family-owned Main Street businesses.

Dear Speaker Pelosi, Leader McCarthy, Leader Schumer, and Leader McConnell:


We, the undersigned organizations representing millions of Main Street businesses and employing tens of millions of American workers, urge you not to raise taxes on small, individually, and family-owned businesses as part of any effort to enact a reconciliation bill this year. In the face of a possible recession, 40-year high inflation, unprecedented supply-chain challenges, and chronic labor shortages, raising taxes on small, individually, and family-owned businesses is the wrong approach and should be rejected.

According to recent media reports, two tax increases under consideration would fall entirely on small, individually, and family-owned, closely-held businesses: 1) expanding the 3.8 percent Net Investment Income Tax (NIIT) to individuals and families who actively participate in their business, and 2) limiting the ability of small, individually, and family-owned businesses to fully deduct their losses during an economic downturn by expanding and extending the so-called “excess business loss limitation” for “noncorporate taxpayers.” Combined, these would increase revenues by more than $400 billion over ten years, shouldered entirely on the backs of small, individually, and family-owned businesses.

While expanding the NIIT is sometimes characterized as closing a tax loophole and that it would increase Medicare funding, neither of these claims are true. When the NIIT was created as part of the Affordable Care Act, it was meant to apply to investment income only. The business income of small, individually, and family-owned firms where the owners ran the business was specifically exempted. This exemption was intentional and in no way constitutes a loophole.

Moreover, the revenue raised by the NIIT does not fund Medicare. As the NIIT initially was adopted as part of a reconciliation bill, attributing the funds of this new tax to the Hospital Insurance trust fund would have violated the Byrd Rule. That is why the NIIT did not fund Medicare when it was adopted in 2010, and why attributing the revenues raised by its expansion to Medicare likely violates the Byrd Rule too.

Expanding the 3.8 percent NIIT represents nothing more than an eleven percent increase in the rates imposed on family-owned businesses. Based on Treasury data, we estimate up to 1 million small and family-owned businesses, representing over half of all pass-through business activity, would be at risk of having their rates increased under this policy. This small business tax hike would hurt the ability of businesses that survived the worst global pandemic in a century to remain viable in the coming months.

Expanding the NIIT would raise taxes on small and family-owned businesses when they are profitable, while extending and expanding the “excess loss limitation” rules would hurt them in the next downturn. During the Great Recession, many businesses were able to survive, in part, due to policies that allowed them to offset their current losses against taxes they had previously paid. These refunds were particularly important for cyclical industries such as construction, manufacturing, and travel and tourism. Extending and expanding the “excess loss limitation” rules into the future would prevent pass-through businesses from having this relief in the next recession, increasing the odds that they don’t survive.

This is ill-advised tax policy and it is being considered at a moment when the economy is no longer growing. First quarter gross domestic product (GDP) fell by 1.6 percent and many economists and forecasters predict that the second quarter GDP will also be negative. Meanwhile, the small business sector may already be in recession, as those businesses have lost employment in three out of the last four months.

Raising taxes on small and family-owned businesses with the economy on the brink of a recession, a situation which is compounded by the other post-pandemic challenges they face, harms not only the businesses but the families and communities who rely on them. We ask you to reject these or any tax hikes on America’s small and family-owned businesses in any legislation considered this year.

Sincerely,

Agricultural Retailers Association

AICC, The Independent Packaging Association

Air Conditioning Contractors of America (ACCA)

Alabama Cattlemen’s Association

American Bakers Association

American Bankers Association

American Building Materials Alliance

American Cotton Producers

American Council of Engineering Companies

American Council of Independent Laboratories

American Farm Bureau Federation

American Financial Services Association

American Foundry Society

American Hotel & Lodging Association (AHLA)

American International Automobile Dealers Association

American Lighting Association

American Mold Builders Association

American Rental Association

American Society for Surgery of the Hand

American Subcontractors Association

American Supply Association

American Trucking Associations

American Veterinary Medical Association

Arizona Farm Bureau Federation

Arkansas Cattlemen’s Association

Asian American Hotel Owners Association (AAHOA)

Associated Builders & Contractors

Associated Equipment Distributors

Associated General Contractors of America

Auto Care Association

Beer Institute

California Association of Winegrape Growers

California Cattlemen’s Association

CCIM Institute

Ceramic Tile Distributors Association

Coalition of Franchisee Associations

Colorado Cattlemen’s Association

Construction Industry Round Table

Convenience Distribution Association

Design-Build Institute of America

Education Market Association

Energy Equipment and Infrastructure Alliance

Energy Marketers of America

Equipment Marketing & Distribution Association (EMDA)

Family Business Coalition

FCA International

Florida Cattlemen’s Association

FMI – the Food Industry Association

Foodservice Equipment Distributors Association

Forest Resources Association

Forging Industry Association

Foundry Association of Michigan

Franchise Business Services

Gases and Welding Distributors Association

Georgia Cattlemen’s Association

Glass Packaging Institute (GPI)

Global Cold Chain Alliance

Heating, Air-conditioning, & Refrigeration Distributors International

Hedgeapple Farm Market

ICSC

Idaho Farm Bureau Federation

Illinois Farm Bureau

Independent Community Bankers of America

Independent Electrical Contractors

Independent Insurance Agents and Brokers of America

Indiana Beef Cattle Association

Indiana Cast Metals Association

Industrial Fasteners Institute

Institute of Real Estate Management

International Association of Plastics Distribution (IAPD)

International Foodservice Distributors Association

International Franchise Association

International Housewares Association

International Sign Association

International Warehouse Logistics Association

Kansas Farm Bureau

Kansas Livestock Association

Kentucky Farm Bureau Federation

Main Street Employers Coalition

Manufactured Housing Institute

Manufacturer & Business Association

Maryland Cattlemen’s Association, Inc.

Material Handling Equipment Distributors Association

Metalcasters of Minnesota

Metals Service Center Institute

Michigan Farm Bureau

Minnesota Farm Bureau

Mississippi Cattlemen’s Association

Montana Farm Bureau Federation

Montana Stockgrowers Association

Mortgage Bankers Association

National Apartment Association

National Association of Convenience Stores

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