Under the House Democrats’ reconciliation plan, the top tax rate on pass-through business income would exceed 50 percent in most states.

Pass-through businesses, such as sole proprietorships, S corporations, and partnerships, make up a majority of businesses and majority of private sector employment in the United States. The owners of these firms pay individual income tax on income derived from these businesses. The marginal tax rates vary for pass-through firms depending on the state where they operate, as states tax individual income differently.

The House Democrats reconciliation plan would raise the top marginal tax rate on ordinary income from 37 percent to 39.6 percent. Additionally, high-income taxpayers would face a 3 percent surcharge on their modified adjusted gross income (adjusted gross income minus any investment interest expense) in excess of $5 million.

The plan would make additional adjustments to…

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