NWRA joined other organizations in a letter to congressional leaders urging them to oppose the expansion of the Net Investment Income Tax (NIIT) in reconciliation legislation. While expanding the NIIT is sometimes characterized as closing a tax loophole and that it would increase Medicare funding, neither of these claims are true. When the NIIT was created as part of the Affordable Care Act, it was meant to apply to investment income only. The business income of small, individually, and family-owned firms where the owners ran the business was specifically exempted. This exemption was intentional and in no way constitutes a loophole. Furthermore, attributing the revenues raised by its expansion to Medicare would violate the Byrd Rule, the Senate budget rule for determining what can be included in a reconciliation bill and what cannot.
“Raising taxes on small and family-owned businesses with the economy on the brink of a recession, a situation which is compounded by the other post-pandemic challenges they are facing, harms not only these businesses but the families and communities who rely on them,” said NWRA President and CEO Darrell Smith. “We urge Congress to reject these tax increases and support policies that encourage investment and job creation.”
The legislative language would expand the 3.8 percent NIIT to all pass-through business income; impose a new surtax of up 8 percent on all forms of income, including family businesses; and make permanent and expand the loss limitation rules under Section 461. Expanding the NIIT would increase revenue by more than $400 billion over ten years, entirely on the backs of small, individually, family-owned businesses.