New, lower tax rate for pass-through entities up for grabs

Many metal fabricating businesses could be seeing substantial tax cuts if President Donald Trump gets his way.

As Congress gets ready to take on tax reform, metal fabricators will be watching whether any final bill establishes lower tax rates for pass-through companies.

With regard to tax rates, some congressional representatives on both sides of the aisle agree that the top corporate rate should drop from the current 35 percent to somewhere in the 20s. It is generally known that Democrats aren't going to buy a rate in the low 20s.

What is more controversial is the rate for pass-through entities, which are typically S corporations, limited liability companies, and partnerships. These companies pay at the individual rate, the top rate of which is currently 39.6 percent, and this rate is not likely to decrease nearly as precipitously as the corporate rate.

That is a problem for many small-business sectors, including fabricators. Both President Donald Trump and the House Republicans’ “A Better Way” plan, published in 2016, have proposed that business income from pass-throughs be taxed at a lower maximum rate than wages, salaries, and other types of ordinary income. Trump and the GOP have backed pretty similar top individual rates, which range from 33 to 35 percent. The Trump administration proposed that all business income be taxed at 15 percent, and House Republicans proposed a 25 percent tax rate on pass-through business income.

But some tax policy experts and nearly all Democrats complain that a separate, lower pass-through rate would lead to tax avoidance. That is the argument that Sen. Ron Wyden, D-Ore., a top Democrat on the Senate Finance Committee, has made.

“Any tax change that allows tax cheats to abuse pass-through status by 'self-declaring' to avoid paying their fair share and dodge Social Security taxes would be worse than what’s on the books today,” Wyden said. “The day the pass-through loophole becomes law would be Christmas morning for tax cheats.”

Republicans would like to pass a tax reform bill through Congress without needing Democratic votes, but that just can’t happen. They will need bipartisan help in the Senate because any bill needs 60 votes to pass and there are only 52 GOP senators.

OSHA Beryllium Proposal Sparks Controversy

Political potshots are coming from all angles as various parties complain about the Occupational Safety and Health Administration’s proposed changes to its January 2017 beryllium workplace rule. It established a new, tighter permissible exposure limit (PEL) for companies in the general industry category, which includes fabricators, and applied that PEL for the first time to the marine industry, where a lot of welding is done.

Beryllium is present in almost all metals, and operations such as grinding and welding result in beryllium wafting into the workplace environment. We reported about OSHA’s late June proposal to rescind the medical monitoring provisions of the new standard as they apply to the construction and marine industries, but not for general industry.

The United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union (USW) is strongly opposing that move as are other groups. Simultaneously, companies in the general industry category are taking the opportunity to urge the Trump OSHA to make changes for them too. Their key objective is to expand the exemption in the new standard, which was whittled down as the Obama OSHA prepared the final standard.

The final rule stated: “This standard does not apply to materials containing less than 0.1 percent beryllium by weight where the employer has objective data demonstrating that employee exposure to beryllium will remain below the action level as an 8-hour TWA [time-weighted average] under any foreseeable conditions.”

John Hoerner, executive vice president, Century Aluminum Co., told OSHA that the narrower exemption means that employers that process or use materials containing any amount of beryllium now have the burden to demonstrate that exposure levels can never exceed the action level, which he calls “vanishingly small.”

The final rule reduced the PEL to 0.2 μg/m³ from 2.0 μg/m³ and established a new short-term exposure limit of 2.0 pg/m³ over a 15-minute sampling period and an action level of 0.1 pg/m³ as an 8-hour TWA.