This April 13, 2014 file photo shows the headquarters of the Internal Revenue Service (IRS) in Washington. (AP Photo/J. David Ake, File)
There are well over 4 million partnerships in America, a business configuration that makes it possible for the nearly 30 million partners who own them to provide consumers with goods and services, hire more workers and contribute to the prosperity of our nation. In fact, a new study from the Small Business & Entrepreneurship Council shows that partnerships in the core living expenditures sector contributed $1.3 trillion to our nation’s GDP in 2023.
But new IRS efforts targeting partnerships could put a damper on this powerful segment of the U.S. economy, leaving many business partnership participants worried that they could be in the IRS’ crosshairs no matter what their incomes are.
This enforcement push comes amid ongoing efforts to change the rules on partnerships. In 2021, Oregon Senator Ron Wyden proposed legislation that would amend the tax code to restrict the flexibility that partnership pass-through rules give partners in deciding how to declare their income. Without that flexibility, tax liability could rise, making it more difficult for partners to invest in their companies, hire more workers, explore new business opportunities or even stay in business.
California’s elected leaders should do everything in their power to prevent this outcome. The IRS’ plan would devastate many of our communities and the effects would be felt for generations. Companies that frequently conduct business as partnerships include local restaurants, family farms, small retail stores and small manufacturers. These entities are all types of business that are often owned by immigrants, who are some of the most entrepreneurial and successful business people in California, as they are across the nation.
Immigrant Americans are 80 percent more likely to start a business than U.S.-born citizens. They create more small, medium and large firms, running the gamut from mom-and-pop shops and eateries to high-tech start-ups. The businesses they own, on average, tend to have more employees. According to 2019 data, there were 3.2 million immigrant entrepreneurs in America, generating $1.3 trillion in sales and creating millions of jobs. In California, where immigrants made up 26.7 percent of the state population, they comprised 38.6 percent of all entrepreneurs.
Increasing IRS scrutiny of partnerships and changing the tax code rules that govern them could put a damper on the value immigrant and native entrepreneurs add to the U.S. economy.
Instead of addressing the root issue – government overspending – Congress and the current administration are once again kicking the can down the road, continuing to treat productive businesses like ATMs to fund pet projects. Demanding that partnerships provide the federal government with more revenue, without taking a serious look at how to reduce the need to take more federal tax dollars from business, is unfair and counterproductive. The goal is simple: Grow the U.S. economy and create new jobs in Orange County.
Diane Dixon represents California’s 72nd Assembly District.
