Construction Law: Troubling Tax Hikes
Main Street Businesses Voice Opposition to Proposed Taxes
by Trent Cotney, partner, Adams & Reese, LLP
(Editor’s Note: Trent Cotney, partner at Adams & Reese, LLP, is dedicated to representing the roofing and construction industries. Cotney is General Counsel for the Western States Roofing Contractors Association and several other industry associations. For more information, contact the author at (866) 303-5868 or go to www.adamsandreese.com.)
In every town in America, you see Main Street businesses. These are the brick-and-mortar companies run by families and other small business owners. They provide unique, practical services to their communities and offer a more personal touch than chains can. As you can imagine, most of these Main Street businesses are hurting these days. Between inflation, staffing shortages, and supply chain issues, they are facing challenges to keep their doors open. So, when many of these businesses recently learned that Congress is considering legislation that would result in higher taxes, they made their opposition known. In July, they sent a letter to congressional leaders and argued against the proposed legislation. In all, 193 trade organizations signed the letter, representing Main Street businesses across the nation, including a number of construction companies.
How the Tax Hikes Would Happen
Two tax increases could result from parts of the Build Back Better reconciliation bill that Congress is reviewing. According to the letter, those increases “would fall entirely on small, individually, and family-owned, closely-held businesses: 1) expanding the 3.8% 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.”
The Argument Against the Legislation
The authors of the letter explain that some see the expansion of the NIIT as a way to close a tax loophole and bolster Medicare funding. However, the organizations argue that these claims are not accurate. The NIIT is included in the Affordable Care Act and is meant to apply only to investment income. Business income was to be exempted. They also explain that the NIIT revenue will not fund Medicare, and to do so would violate the Byrd Rule.
The letter goes on to say that “Expanding the 3.8% NIIT represents nothing more than an 11% increase in the rates imposed on family-owned businesses. Based on Treasury data, we estimate up to one 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.”
Considerations for the Coming Months
Businesses of all sizes are struggling in the current economy. The organizations that signed this letter recognize that. They see that the nation is on the verge of a recession, and many companies are still facing pandemic-related problems.
Lawmakers are in a bind as they attempt to enact parts of the Build Back Better initiative that the Biden administration supports. Although it is exemplary that some legislators are trying to find bipartisan common ground, the increased taxes resulting from the bill could be catastrophic for business owners, as well as for the communities they serve.
The months ahead could be difficult for many companies. It will be interesting to see what legislation Congress passes and what steps our elected officials take to protect Main Street businesses during these troubling times.