Finance

Trump economic adviser: ‘pass-through’ businesses one of the ‘toughest issues’ in tax reform

Greg Nash

White House economic adviser Gary Cohn said Wednesday that the “toughest issues” on tax reform that policymakers are dealing with relate to “pass-through” businesses whose income is taxed through the individual income tax code.

“The personal side is relatively easy and the corporate side is relatively easy,” Cohn said at a meeting in the White House with representatives from the energy industry.

But “there’s a big group in the middle, pass-through entities, which is really tough, but that group is really important,” Cohn added.

Most U.S. businesses, from many small businesses to law firms and hedge funds, are pass-throughs whose income is taxed on their owners’ returns. 

The tax plan that the White House released in April floated a 15 percent rate for both corporations and small businesses. Treasury Secretary Steven Mnuchin said at the time that the administration would make sure that there are rules preventing wealthy people from creating pass-throughs to avoid taxes, but did not say what those rules would look like.

Cohn said that the administration hasn’t figured out exactly what it is going to do with pass-throughs in tax reform, but has received a lot of feedback on the topic.

“Getting pass-throughs right is really important to us,” Cohn said, noted that small and medium-sized businesses create many jobs. 

The White House is also working to figure out international tax rules on how to protect the U.S. tax base, Cohn said.

Cohn reiterated that the administration wants tax-reform legislation enacted this year, saying that it will be the White House’s top agenda item starting in about the middle of August.

“We firmly believe that when American citizens get their first paycheck in 2018, they’ve got to see more income,” he said.

Administration officials have met with GOP congressional leaders and the chairmen of the tax-writing committees regularly to formulate a detailed tax plan.

“There will not be competing plans,” Cohn said.

Wednesday’s meeting with energy groups is one of several listening sessions with industry groups that Cohn and Mnuchin have held in recent weeks. The meeting coincided with the White House’s “energy week.”

Previous tax-reform listening sessions have involved groups in the transportation and technology industries.

Cohn said that he and Mnuchin have met with more than 160 lawmakers from both parties, as well as hundreds of business leaders.

“We’ve heard that everyone understands we need tax reform,” Cohn said.

Stakeholders have said that the tax code needs to be simplified, middle-class taxpayers need tax relief and the U.S. should move to a “territorial” tax system that exempts companies’ foreign earnings from U.S. taxes, Cohn added.

Participants in the listening session included the American Petroleum Institute, the American Gas Association and the Independent Petroleum Association of America.

“As tax policy reforms are made, changes should not deter investment and development of American resources,” IPAA President and CEO Barry Russell said in a statement after the meeting. “Most importantly, key capital recovery provisions of the tax code are critical for America’s independent producers – many of which are small family-run businesses.”

An API spokesperson said that “the right tax reform approach must support job creation, manufacturing competitiveness and global trade, including robust capital cost recovery mechanisms, a competitive international tax system, and use of available foreign tax credits as part of any deemed repatriation provision.”

“We appreciate today’s opportunity to engage with administration officials on this important issue and look forward to continuing our work with the administration and Congress to help meet the nation’s energy needs,” the spokesperson added.

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