Regulatory and Legal Reform

The NAM is urging Congress to scrap a proposed set of tax changes that would harm pass-through entities, including many manufacturers.

The proposal: As Congress continues to hammer out President Biden’s reconciliation bill, members of the House and Senate have been floating new taxes to help pay for the package. Senate Finance Committee Chairman Ron Wyden (D-OR) has released one set of proposals that would change pass-through tax policy in order to raise an estimated $172 billion over 10 years.

The problem: The proposals from Sen. Wyden’s committee could create a series of challenges, including:

• Discouraging partnership formation: The proposal would mandate a complex method for tracking gains and losses, which would likely prevent some partnerships from forming in the first place by making the process more onerous and less rewarding.
• Confusion for existing partnerships: The proposal would make retroactive changes to existing partnerships, creating unnecessary complexity and confusion for pass-through organizations that are already conducting business.
• Barring legitimate transactions: The proposed rules would present some obstacles that are tougher than those imposed on corporations, making it difficult for pass-throughs to conduct legitimate business.

Why it matters: Pass-through entities account for millions of employees and billions of dollars in capital investment. The current structure of pass-through partnership law offers manufacturers a critical way to start and maintain a business—especially for small and medium-sized manufacturers. Altering the tax rules for pass-throughs could change that calculation.

What we’re doing: The NAM has communicated with the committee and will be doing significant outreach to educate Congress on the impact of these proposed rules and to help find the best solutions for a fairer tax code.

What we’re saying: “If enacted, these proposals could discourage new business formation, stifling entrepreneurship, investment and growth,” said NAM Vice President of Tax and Domestic Economic Policy Chris Netram. “The increased complexity in the tax code would be particularly onerous for small and medium-sized manufacturers who could be forced to divert resources from operations to tax compliance.”