GOP Tax Cut: Small Biz Boon Or Loophole For Rich And Trump?

A key provision would slash tax rates for a special kind of business set up by owners of profitable firms, including Trump and his family.

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President Donald Trump and his Republican partners in a nearly $6 trillion tax-cutting plan insist it would benefit middle-class Americans and not the wealthy. But a key provision would slash tax rates for a special kind of business set up by owners of profitable firms, including Trump and his family.

The GOP tax blueprint would cut rates for businesses whose profits are taxed at the owners' personal income rate, with proponents casting it as tax relief for small business. Known as "pass-through" companies because their profits are pipelined into the owner's personal tax bucket, those businesses span a huge range, from the local florist and family-owned restaurant to law firms, hedge funds and privately held large firms such as real estate companies — and Trump's own property empire.

Instead of paying the current top rate of 39.6 percent, owners of these businesses would be taxed at 25 percent under the GOP plan. That would deliver a substantial windfall to Trump's daughter Ivanka and her husband, Jared Kushner, who have reported holding stakes in more than 200 limited liability companies, or LLCs.

One example is a cluster of LLCs involving the historic Puck Building in Manhattan, a property that Kushner's family bought when he was 5. Kushner, who helped add penthouses, made more than $5 million from the companies last year.

Trump himself owns about 500 entities structured as pass-throughs, according to his lawyers, making the Trump Organization less a single business than a grab-bag of units drawing on the fancier parts of the tax code: sole proprietorships and limited liability partnerships. Unknown at this point is how much Trump would gain, because he hasn't disclosed how much he pays in taxes.

With the release of the tax plan last week, Trump maintained that the rich won't capitalize and neither will he.

"No, I don't benefit. I don't benefit. .... I think there's very little benefit for people of wealth," the president said.

Oregon Sen. Ron Wyden, the top Democrat on the Senate Finance Committee, begged to differ.

"There is in the Republican plan a brand new pass-through proposal that invites tax cheats to skip out on paying their fair share," he said in a Senate speech Wednesday.

Sen. Ron Wyden, D-Ore. (AP photo)Sen. Ron Wyden, D-Ore. (AP photo)

But House Speaker Paul Ryan, one of the chief architects of the tax plan, said in an interview with radio station WISN in his home state of Wisconsin that 90 percent of businesses in the state are pass-throughs.

"And these businesses in Wisconsin are competing in a global economy ... so we're taxing these businesses in our economy at double the rates" of other industrial countries, Ryan said.

Small business is a cherished touchstone of Republican politics, a pillar of small-town Main Street and the Rotary Club where everyone knows the local proprietor. And the new tax proposal, which deeply reduces levies for corporations and nearly doubles the standard deduction used by most Americans, pays homage.

"Small businesses drive our economy and our communities, and they deserve a significant tax cut," the blueprint says.

Democratic lawmakers are raring to set out new restrictions and protections against abuse of the lower tax rate for pass-through companies. They want to write the protections into the tax legislation. Republicans could be looking to head off stricter protections by putting forward their own and getting them written into law.

"We have spent an enormous amount of time on the anti-abuse language," Gary Cohn, Trump's chief economic adviser, told reporters at the White House last week. "The last thing we want to see is wealthy individuals or wealthy groups or families move their tax rate down ... to the 25 percent rate."

No specifics yet. But Cohn offered that, "guys like myself should not be allowed to put their assets into a partnership and reduce our tax liability by 10 percent."

Cohn, who rose at Wall Street powerhouse Goldman Sachs to become its president before he came to the White House, is one of the administration's wealthiest members. He received at least $40 million in income last year from Goldman-related dividends, interest, salary and bonuses, about half of which came in the form of stock compensation, according to his financial disclosure filings.

Rep. Richard Neal, the top Democrat on the tax-writing House Ways and Means Committee, promises to focus on preventing potential abuses of the special tax structure. Is he convinced by the White House effort?

"I've yet to see evidence of it," Neal said in an interview. "They've said in a very general way, 'We can build these walls.' I want to see that."

But Rep. Steve Chabot, an Ohio Republican who heads the House Small Business Committee, is unfazed. "We need to be mindful of (potential abuses) when we're putting this bill together," he said. "But for most small business folks, it will have a significant, positive impact."

Small businesses are divided about the Republican proposal.

"That's not a very targeted way to benefit most small businesses," said John Arensmeyer, CEO of Small Business Majority. The proposed rate cut wouldn't help most small companies, he said, because the top current rate of 39.6 percent is paid by less than 2 percent of them.

Still, other small business advocates — the National Federation of Independent Business and the Small Business and Entrepreneurship Council — support the proposed rate reduction.

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