Campaign ad attacks on Sen. Ron Johnson claim he personally benefited from a tax change he sought.
In the TMJ4 U.S. Senate Debate on Oct. 13, Sen. Johnson not only pushed for the change, but the Oshkosh Republican also said he’s proud of it.
“…There aren’t many senators who can say they got tax cuts for 20 million businesses,” Sen. Johnson told a crowd at Marquette University’s Varsity Theatre.
Let's dive into it.
In 2017, Sen. Johnson ultimately voted yes on the Tax Cuts and Jobs Act after it gave better treatment to pass-through entities. These are companies that are taxed at rates for individual taxpayers, but whose profits are distributed to owners.
“So what that tax cut delivered, at a very high level, is a 20% deduction for what’s called qualified business income. And so that income is passed through to individuals,” said Marquette University Tax Prof. Rachel Detert.
Our Truth Be Told team went to Prof. Detert for help in breaking this down.
TMJ4’s Chief Political Reporter Charles Benson asked Prof. Detert, "If there is a sense that the more money you have or make, the bigger the benefit will be?"
“Right, if the calculation is 20% of your qualified business income, the larger that business income number is, the larger that deduction is going to be. So, this deduction does have interplay with other different types of tax credits and things. So, it's nuanced. It's not a yes, absolutely. But for the most part, in general, it's correct to say if you have more income, you get a larger deduction,” said Prof. Detert
While it is true Sen. Johnson benefitted from the lower tax rate, it's important to note it's available to almost all business owners, such as partnerships or s-corporations. Those owners report income and losses on their personal returns and pay individual tax rates. They do not pay a corporate tax rate.
“It depends on what type of business, what their business does, and how much money they have outside of their business. And so, the QBI calculation has tons of iterations that kind of go through all of those, but it can really be available. It's not available only to millionaires, and it's not available only to our middle-class taxpayers,” said Prof. Detert.
The change in tax law also helped Sen. Johnson's family-owned business, Pacur LLC, a plastics manufacturer in Oshkosh.
Prof. Detert says the benefit went to a range of businesses both big and small.
“The most benefit is afforded to people who have non-specified service trades or businesses. So, the IRS defines that very broadly, intentionally. And what that means is those are businesses if we think about people who make or produce things, they tend to get the larger benefit versus those that businesses that provide services to generalization,” said Prof. Detert.
To be clear, pass-through income has always been reported on taxes. This was just a change in the tax law.
Truth be told, about 95% of businesses are classified as 'pass-throughs' according to a 2017 article by the Brookings Institution.
A 2021 study by the National Bureau of Economic Research found the top 1% of Americans received almost 60% of the tax savings.
Sen. Johnson's team did not meet our deadline to respond to the ad's claim.