This could be a real windfall for the typical concrete producer who is an independent business.
As President Trump approaches the 100-day mark of his presidency, there is no doubt he has had a bumpy start. While he has issued a number of executive orders that fulfill various campaign promises, his initiatives requiring action by Congress have not gone as well. His first, the repeal of Obamacare, died a painful death, despite recent efforts to resurrect it. And the $1 trillion infrastructure effort that many had hoped would be passed by the August Congressional recess drags on, as Congress wrings its hands wondering how we pay for it.But tax reform was another campaign promise, and now he plans to pursue a proposal to slash the top tax rate on pass-through businesses, including many owner-operated companies, to 15% from 39.6%. For the typical concrete producer who is an independent business, this could be a real windfall. Many operate in the pass-through format, as either Subchapter S corporations or LLCs, where their income and deductions pass through to their owners’ individual returns. That group includes many small firms, but it also includes large global law firms, professional practices, hedge funds, and Trump’s own real estate and branding businesses.
Trump’s proposal to slash rates for pass-through companies could pose problems for Congress but will win him support from small business groups who say all business income should be treated equally, even though some corporate income is subject to a second layer of taxes on capital gains and dividends.
But as has been widely reported, lawmakers are likely to struggle to fit the 15% pass-through tax rate inside budgetary and procedural constraints, because it would add more than $1 trillion to the 10-year cost of any tax plan. It also will be hard for Congress to write rules to prevent people from converting higher-taxed wages into lower-taxed business profits. Further, Trump may have trouble complying with the procedure known as reconciliation, which allows a Republican party-line vote in the Senate, but which requires bills to avoid increasing budget deficits outside the 10-year budget window.
This is one of the most promising proposals for tax reform we have seen in decades. Let’s hope Trump can convince Congress this break will allow independent businesses to keep more of what they earn so they can reinvest in their companies, which benefits the entire economy.
About the Author
Pierre G. Villere serves as president and senior managing partner of Allen-Villere Partners, an investment banking firm with a national practice in the construction materials industry that specializes in mergers & acquisitions. He has a career spanning almost five decades, and volunteers his time to educating the industry as a regular columnist in publications and through presentations at numerous industry events. Contact Pierre via email at pvillere@allenvillere.com. Follow him on Twitter – @allenvillere