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FACT BRIEF

Will taxes 'automatically' go up for 95% of business owners after the Trump tax cuts expire?

By Erin Gretzinger
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NO

While individual tax cuts from the 2017 Tax Cuts and Jobs Act are set to expire after 2025, 95% of business owners will not "automatically" experience a tax hike, because many businesses have no taxable income.

TCJA's corporate tax cuts are permanent. However, most American businesses "pass through" their tax liability to their individual owners. In 2015, 95% of businesses, representing 63% of business income, were pass-through, according to EconoFact.

Pass-through business income would be taxed at a higher rate if TCJA's individual tax cuts and 20% pass-through income deduction are allowed to expire.

In this scenario, pass-through businesses that turn a profit would see their taxes increase. But tax expert Matt Gardner points out that "many, many businesses each year don't turn a profit" and therefore "have no taxable income to pass through."

Less than two-thirds of small businesses were profitable in 2022, according to the Chamber of Commerce.

This fact brief is responsive to conversations such as this one.
Sources
Investopedia Explaining the Trump Tax Reform Plan
EconoFact The Other 95%: Taxes on Pass-Through Businesses
Investopedia How the TCJA Tax Law Affects Your Personal Finances
DocHub ITEP Matt Gardner Response
Chamber of Commerce Small Business Statistics
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Wisconsin Watch, the news arm of the nonpartisan, nonprofit Wisconsin Center for Investigative Journalism, increases the quality and quantity of investigative reporting in Wisconsin, while training current and future investigative journalists. Its work fosters an informed citizenry and strengthens democracy.
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Fact briefs are short, credibly sourced summaries that offer “yes/no” answers in response to claims found online. They rely on publicly available, often primary source data and documents. Fact briefs are created by contributors to Gigafact —a nonprofit project looking to expand participation in fact-checking and protect the democratic process. See all fact briefs here.