Groups Oppose Small Business Tax Increases

July 11, 2022

The Honorable Nancy Pelosi
Speaker of the House
U.S. House of Representatives
H-232 U.S. Capitol
Washington, DC 20515

The Honorable Charles Schumer
Senate Majority Leader
United States Senate
Washington, DC 20510

The Honorable Kevin McCarthy
House Minority Leader
U.S. House of Representatives
H-204 U.S. Capitol
Washington, DC 20515

The Honorable Mitch McConnell
Senate Minority Leader
United States Senate
Washington, DC 20510

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

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 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

National Association of Electrical Distributors

National Association of Home Builders

National Association of Insurance and Financial Advisors

National Association of Manufacturers

National Association of Professional Insurance Agents

NATIONAL ASSOCIATION OF REALTORS®

National Association of Sporting Goods Wholesalers

National Association of Truckstop Operators

National Association of Wholesaler-Distributors

National Association of Women Business Owners (NAWBO)

National Beer Wholesalers Association

National Cattlemen's Beef Association

National Community Pharmacists Association

National Cotton Council

National Cotton Ginners Association

National Council of Agricultural Employers

National Council of Farmer Cooperatives

National Electrical Contractors Association

National Electrical Manufacturers Representatives Association (NEMRA)

National Federation of Independent Business (NFIB)

National Franchisee Association

National Grocers Association

National Independent Automobile Dealers Association (NIADA)

National Insulation Association

National Marine Distributors Association

National Mining Association

National Multifamily Housing Council

National Newspaper Association

National Onion Association

National Peach Council

National Pecan Federation

National Pork Producers Council

National Potato Council

National Ready Mixed Concrete Association

National Restaurant Association

National Retail Federation

National Roofing Contractors Association

National RV Dealers Association (RVDA)

National Small Business Association

National Stone, Sand & Gravel Association

National Tooling and Machining Association

National Waste & Recycling Association

Nebraska Cattlemen

New Jersey Farm Bureau

New Mexico Cattle Growers' Assn.

New Mexico Farm & Livestock Bureau

New York Farm Bureau

North American Association of Food Equipment Manufacturers (NAFEM)

North American Die Casting Association

North Carolina Cattlemen's Association

North Dakota Grain Growers Association

Ohio Cattlemen's Association

Ohio Farm Bureau Federation

Oklahoma Cattlemen's Association

Oregon Cattlemen's Association

Outdoor Power Equipment and Engine Service Association

Pennsylvania Farm Bureau

Pet Industry Distributors Association

Petroleum Equipment Institute

Plastics Industry Association

Plumbing-Heating-Cooling Contractors — National Association

Policy and Taxation Group

Precision Machined Products Association

Precision Metalforming Association

Public Lands Council

Reserve Organization of America

Retail Bakers of America (RBA)

S Corporation Association

SIGMA: America's Leading Fuel Marketers

Small Business & Entrepreneurship Council

Society of American Florists

Society of Collision Repair Specialists (SCRS)

Society of Industrial and Office REALTORS®

Southeastern Lumber Manufacturers Association

Southwest Council of Agribusiness

Specialty Equipment Market Association

Spray Polyurethane Foam Alliance

Subchapter S Bank Association

Texas Cattle Feeders Association

Texas Farm Bureau

The Hardwood Federation

The National Grange

Tile Roofing Industry Alliance

Tire Industry Association

Truck Renting and Leasing Association

U.S. Apple Association

U.S. Peanut Federation

United Egg Producers

US Sweet Potato Council

USA Rice

Virginia Cattlemen's Association

Virginia Farm Bureau

West Virginia Cattlemen's Association

Western Growers

Western States Roofing Contractors Association

Wine and Spirits Wholesalers of America

Wisconsin Cast Metals Association

Wisconsin Cattlemen's Association

Wood Machinery Manufacturers of America

Wyoming Farm Bureau Federation

Wyoming Stock Growers Association