Small business tax cut paired with carried interest crackdown
H.R. 3275 — Small Business Tax Relief Act · Filed by Angie Craig (D-MN) · Introduced May 8, 2025 · Referred to committee
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What it does
This bill lowers the corporate tax rate for small businesses (those earning up to $5 million annually) from 21% to a graduated rate of 18% on the first $400,000 of income and 21% above that, while simultaneously closing the 'carried interest loophole' by requiring investment managers in partnerships to pay ordinary income tax (rather than lower capital gains rates) on their share of partnership profits. The bill targets two groups: small business owners benefit from lower rates, while private equity and hedge fund managers lose a tax advantage.
Why we flagged it
The bill combines a targeted tax cut for small businesses (a narrow benefit) with a tax increase on investment managers (a broader accountability measure). It is not purely relief nor purely enforcement—it is a trade-off between two tax policy goals.
What the text implies
- The $5 million income threshold for small business rates may incentivize business restructuring or income-splitting strategies to stay below the cap, potentially reducing overall tax revenue.
- Carried interest recharacterization may increase costs for limited partners in investment funds, potentially raising fees or reducing returns for retail investors and pension funds holding these assets indirectly.
The full analysis lists 3 implications of this text.
Who stands to gain
small business corporations (under $5M annual income); pass-through entities structured as small corporations