Sizing Up Trump's Tax Proposal

Midsize companies stand to benefit more than bigger ones

- Lewis Braham

Donald Trump promised companies a “massive” tax cut. Businesses aren’t likely to benefit equally, however.

Small and especially midsize companies stand to gain the most from a straight corporate tax cut, though only if they’re profitable, according to interviews with members of Bloomberg’s Breakaway network, which encompasses 78 high-growth businesses with annual revenue averaging about $450 million.

The Trump administration has proposed reducing the maximum tax rate from 35 percent to 15 percent. House Republicans favor a 20 percent rate; they also want to lower the top rate for so-called pass-through entities, a category that includes limited liability companies and S corporations, from 39.6 percent to 25 percent. More than 90 percent of U.S. businesses—28.3 million—are pass-throughs; most are small to midsize. Under Trump’s plan, the 15 percent rate would also apply to such enterprises. That could benefit his own businesses, which are structured as limited liability companies.

One important caveat: Only profitable enterprises will see any advantage from a cut to the corporate rate—and that’s more likely to be mature companies than startups. Among publicly traded corporations, 82 percent of mid-caps were profitable in 2016, vs. 68 percent of smaller companies, according to FTSE Russell, which compiles various stock indexes.