An income tax for everything

Here's the simplest and fairest way to reform the tax code

There's a big loophole in President Trump's tax reform plan, and the White House knows it.

The problem can be found in one of the plan's signature items: cutting the top tax rate for all businesses to 15 percent. Right now, a business can be taxed one of two ways. If it incorporates as a traditional C-corporation, it pays the federal corporate tax on its profits. But if it incorporates as an S-corporation, a partnership, or a sole proprietorship — i.e. a "pass-through" business — its profits are hit instead by the regular income tax. The reason for Trump's change is that a lot of small businesses and the self-employed are in the latter group, and it wouldn't be fair for, say, Sam the carpenter to face the income tax's higher rate if the corporate tax for a giant company like Home Depot was just cut.

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Jeff Spross

Jeff Spross was the economics and business correspondent at TheWeek.com. He was previously a reporter at ThinkProgress.