Proposed corporate, small business tax rates don’t fall to 15 percent

President Donald Trump promised during his campaign to cap the corporate tax rate at 15 percent from its current maximum rate of 35 percent.

Now in office, he might settle for something in between.

The White House's 2017 tax code framework — which was put together by the Trump administration, the House Committee on Ways and Means and the Senate Committee on Finance — proposes cutting the corporate tax rate to 20 percent.

Also included in the plan is a new provision that would limit the maximum tax rate on income earned by "small businesses" (defined in the framework as sole proprietorships, partnerships and corporations with no more than 100 shareholders).

These businesses, often referred to as "pass-through entities," currently do not pay corporate taxes. Rather, the profits "pass through" the business and are taxed at individual rates, which do not exceed 39.6 percent.

The framework calls for capping the tax rate of income earned by pass-through businesses at 25 percent. Trump's original plan was to also tax these types of businesses at a 15 percent rate. (His campaign's tax plan is archived here.)

In May, the Tax Policy Center estimated a 10-year federal revenue loss of between $390 billion and $660 billion if the United States cut the rate for pass-through income taxes to 25 percent. Between 85 and 88 percent of the net tax benefit would go to the upper 1 percent of pass-through income earners, depending on whether the legislation uses a broad or narrow definition of pass-through income.

It's worth noting that Trump conducts business through more than 500 pass-through entities, according to a document obtained and published by the New York Times.

Even though his initial plan to tax all businesses, large and small, at no more than a 15 percent rate didn't quite pan out, Trump is still pushing for significant business tax cuts. It looks like he is headed for a compromise, but until we see legislation on this, we'll continue to rate this In the Works.