The bill also includes some "guardrails" to discourage people from gaming this system. At least in theory. [...]
But here's the rub. This 70-30 rule would apply only if you're "actively" working for the company you own. If instead you're considered a "passive" owner -- determined by, for example, how many hours you log working for it -- then you inexplicably qualify for the special pass-through rate on 100 percent of your earnings.
Consider a hypothetical: A family business has been passed down to several siblings with varying levels of industriousness and IQ.
The most competent sibling works for her family's company full-time. The least competent sibling kicks in a few hours of work each year, but otherwise spends his time popping bottles of champagne and hunting endangered wildlife.
Under the Republican tax bill, the lowest tax rate is paid by the ne'er-do-well brother, rather than by the worker-bee sister who actually grew the business. Although, with a good enough accountant, she might be able to convince the Internal Revenue Service that she's just as lazy and uninvolved as her brother.
This is a strange way to design tax incentives.
The Republican tax bill is weighted toward the loafer, the freeloader, the heir, the passive investor who spends his time yachting and charity-balling.
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