The U.S. House of Representatives passed a budget plan Thursday that would cut taxes by about $5 trillion, according to Reuters. 

It passed with a 216-214 House vote after passing the Senate Saturday. The plan calls for about $4 billion in spending cuts but would add about $5.7 trillion to the federal government’s debt over the next decade, according to Reuters. 

Budget plans are blueprints and details about the tax cuts will be determined in coming months. 

Multiple media sources have reported that earlier in the week, Republicans were considering a 39-40% tax hike for those earning more than $626,350 a year as a way to offset some tax cuts in the budget plan. 

A joint trade association letter was sent today to U.S. Rep. Jason Smith, House Committee on Ways & Means chairman, and Sen. Mike Crapo, Senate Committee on Finance chairman, asking them to oppose any effort to increase income rates, including the top individual rate to 40%. 

“This idea is presented as a modest adjustment affecting only the wealthiest Americans, but it would disproportionately harm hundreds of thousands of pass-through businesses organized as S corporations, partnerships, and sole proprietorships,” the letter says. 

Ninety-five percent of all businesses are pass-throughs, which employ 62% of the nation’s workforce, the letter says. Most of the businesses are taxed at the top rates. 

According to the letter, this would harm Main Street businesses that are responsible for employing millions of Americans, driving investment, and supporting local economies nationwide. 

Main Street businesses would be saddled with a tax hike that offsets about half the tax benefit of extending the Section 199A deduction. 

In January, more than 230 trade associations signed a letter sent to U.S. Sen. Steve Danes (R-MT) and Rep. Lloyd Smucker (R-PA) in support of their legislation to make the Section 199A deduction permanent. 

Friday’s letter says that with the Net Investment Income Tax and state and local taxes, the proposal would impose marginal rates exceeding 40% on businesses that receive the full Section 199A deduction, or twice the rate paid by C corporations. 

Some industries are precluded from Section 199A including foreign-sourced income and Section 1231 gains. Yet, “guardrails” tied to wages, capital investment and taxable income reduce the value of the deduction for many more. Businesses ineligible for the full 199A deducation would face combined marginal rates about 50%, which the letter says “are simply not sustainable.”

“We understand the fiscal pressures involved in crafting a legislative package of reforms and extensions, but increasing the top individual rates would target the very businesses Congress seeks to help,” the letter says. “Proposals like this reflect a fundamental misunderstanding of how these companies operate and their central role in the broader economy.”

The letter is signed by about 100 trade associations including the Society of Collision Repair Specialists (SCRS), Specialty Equipment Market Association (SEMA), and the S Corporation Association. 

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