LET THE CORNER SHOP BREATHE.

JUSTICE · ECONOMIC JUSTICE

Published by Langhorne P. Breedlove

MONDAY, NOVEMBER 9, 2026 · 12:20 AM ET

Reading time: 9 minutes

Tags: Small Business · Federal Taxation · Entrepreneurship · Gross Receipts · Tax Reform

Dear fellow American proletariat: the government has a splendid talent for calling a business “small” right up until that business needs to pay a bill. Then the sole proprietor with a broken copier, the barber with three chairs and the neighborhood grocer are invited to navigate a tax system built for people who have tax departments.

The proposed remedy is straightforward in purpose and considerably more complicated in law: establish a 0% federal business-income-tax treatment for genuinely independent enterprises with less than $1 million in annual gross receipts. The million-dollar figure measures the size of the operation, not its take-home profit. That difference is the whole story.

THE MANDATE

American Proletariat proposes a federal income-tax exemption for eligible businesses below $1 million in annual gross receipts, accompanied by rules for owners operating through sole proprietorships, partnerships, S corporations, limited liability companies and C corporations. The relief would apply to qualifying business profit—not to wages from an unrelated job, investment earnings unrelated to the enterprise, or personal spending disguised as a deduction.

AP's canonical proposal does not yet settle whether a firm crossing the threshold would lose all relief immediately, how the benefit interacts with the separate proposed 0% personal-income-tax band on the first $80,000, or how owners with several businesses are treated. Those questions require legislative answers. This page recommends a gradual phaseout and common-control aggregation as design safeguards, without pretending either is already approved.

RECEIPTS ARE NOT PROFITS.

Suppose a bakery sells $900,000 worth of bread, cakes and coffee during a year. It spends $600,000 on supplies, wages, rent, utilities and other deductible expenses, leaving $300,000 in simplified profit before the applicable tax calculations. A $1 million receipts test would assess the $900,000 top line; it would not claim the baker earned $900,000 personally. The IRS describes a self-employed person's net profit as business income minus business expenses (Source 01). This numerical bakery is hypothetical, not a national average.

The Census Bureau's 2023 data counted 30,427,808 nonemployer establishments, with nearly $1.8 trillion in combined receipts. Most nonemployers were self-employed sole proprietors, and these establishments are not identical to independent employer firms (Source 02). In the same year, Census counted 5.58 million U.S. employer firms with at least one but fewer than 500 employees (Source 02). Those figures explain why defining who qualifies is consequential; they do not tell us how many would receive a tax exemption under this exact proposal.

HOW THE TAX SYSTEM WORKS TODAY

THE OWNER AND THE BUSINESS AREN'T ALWAYS SEPARATE TAXPAYERS

A C corporation generally pays federal income tax at the entity level, while many sole proprietorships, partnerships and S corporations pass taxable business results through to owners' individual returns. The Federal Deposit Insurance Corporation's small-business tax curriculum explains this distinction between corporate and pass-through treatment (Source 03). A proposal that exempts only C corporations could miss much of the intended audience; an unbounded exemption for pass-through owners could favor high-income individuals operating multiple entities.

Current federal law also allows qualifying pass-through owners a deduction of up to 20% of qualified business income under Internal Revenue Code Section 199A, subject to limitations. Congress made that deduction permanent in Public Law 119-21 on July 4, 2025 (Source 04). AP's proposed zero-rate treatment would therefore need to specify how it replaces, coordinates with or limits existing provisions instead of letting overlapping preferences multiply without scrutiny.

INCOME TAX ISN'T EVERY TAX

Self-employed individuals generally face self-employment tax as well as federal income tax. The IRS reports a 15.3% combined Social Security and Medicare rate on applicable net earnings, subject to the relevant rules and limits (Source 05). A 0% business-income-tax provision would not, by itself, eliminate payroll, self-employment, sales, property, excise or state and local taxes. AP must decide these questions separately and cost the consequences.

WHO QUALIFIES?

Eligibility should use a clear annual gross-receipts definition, with stated rules for returns, refunds, related-party transactions, predecessor businesses, short tax years and newly formed enterprises. Congress already uses receipts tests in other tax provisions. Section 448(c) includes aggregation rules for businesses treated as a single employer, preventing related entities from separately qualifying merely by splitting ownership structures (Source 06). The new AP rule would need its own statutory scope rather than automatically importing every existing threshold.

A florist operating one shop and employing neighbors is the obvious intended beneficiary. A national chain should not turn a thousand locations into a thousand supposedly independent million-dollar companies. A consultant with several businesses under common control should not receive a separate unlimited exemption for every new LLC. Conversely, unrelated entrepreneurs should not be punished because they rent space in the same building or share a bookkeeping service.

A serious design must also distinguish active operating income from passive investment income, require genuine beneficial-ownership disclosure, and prevent artificial shifting of profits, contracts or sales to preferred entities. Enforcement ought to be proportionate: ordinary merchants should have simple filing, accessible records and appeal rights, while sophisticated structures receive the scrutiny sophisticated structures are capable of inviting.

THE ONE-DOLLAR CLIFF

Consider two otherwise similar firms, one with $999,999 in receipts and the other with $1,000,001. A rule that taxes the second firm fully while exempting the first could punish a successful expansion or give business owners a reason to turn down a sale. That is an incentive problem, not a moral failing of the shopkeeper.

A phaseout above $1 million, or a credit taper rather than an abrupt eligibility cliff, would be a reasonable design option for legislative study. Lawmakers must decide the phaseout interval, whether the test uses current-year or averaged receipts, how losses carry forward, and how an enterprise handles the first year it crosses the line. Those parameters will determine distribution, revenue cost and business behavior.

THE LEGAL PATH

Congress has the authority to amend the Internal Revenue Code and specify the treatment of corporations and pass-through business income. Treasury and the Internal Revenue Service would administer duly enacted rules; they cannot create a nationwide tax exemption simply by updating a form. State and municipal taxes would remain governed by their own laws unless those jurisdictions enacted separate changes.

Implementation should begin with a statutory eligibility definition, legislative revenue scoring, standardized application rules and safe-harbor filing for straightforward small enterprises. The law should require annual reporting of claims, enforcement adjustments and distributional effects while protecting confidential taxpayer information.

THE TEN-YEAR LEDGER

A credible ten-fiscal-year model needs a year-one comparison and annual estimates of lost federal individual and corporate income-tax receipts, existing deduction interactions, behavior changes, administration, audit costs, transition expenses, and possible offsetting revenue. It should show costs separately for C corporations, sole proprietors, partnerships and S-corporation owners. Any broader effect on hiring, business formation or economic output should be modeled as a range, not booked in advance as guaranteed collections.

The 2026 Congressional Research Service reported that the Joint Committee on Taxation estimated the 2025 extension and modification of Section 199A would reduce federal receipts by $736.5 billion over fiscal years 2025–2034 (Source 07). That is an estimate for existing legislation, NOT the cost of AP's proposed under-$1-million exemption. We should not borrow that number as though it were a free fiscal forecast.

A ten-year cost figure for AP's policy remains unscored until Treasury or independent modelers assemble tax-return microdata, common-control links, receipts distributions, profits, effective tax rates and a specified phaseout. The baseline must reflect tax provisions already in law. Revenue effects, compliance changes and household interactions should be published under multiple scenarios. The public deserves arithmetic with footnotes, not a fiscal magic trick performed with a top hat and someone else's money.

WHAT COULD GO WRONG?

Some relief might flow to owners who are already comfortable rather than to struggling independent operators. Businesses could reorganize to stay under the threshold. Firms at the boundary might delay hiring or sales. A narrow exemption could create unequal outcomes between entity types or between two companies with identical profits and different receipts. State revenue systems might not follow the federal treatment, leaving taxpayers surprised.

Critics may prefer refundable credits, lower employer payroll charges, direct start-up grants or better access to capital over a zero income-tax rate, particularly because a business with no taxable profit receives little immediate benefit from an income-tax exemption. Those alternatives deserve comparable fiscal modeling. AP should publish not just the winners, but which businesses receive nothing and why.

MEASURING SUCCESS

The scorecard should report eligible claims and dollars of relief, distribution across receipt bands and industries, changes in business survival and investment, wage and employment outcomes where measurable, compliance costs, audits, artificial fragmentation cases and net federal revenue effects. The figures must distinguish an observed association from a causal effect, and include the experience of firms with little or no taxable profit.

A MILLION IN SALES ISN'T A MILLION IN YOUR POCKET.

A small business can be a workplace, a neighborhood institution, a personal livelihood and a very expensive lesson in the price of printer ink. AP's proposal asks whether the federal income-tax system should collect less from genuinely small operating firms so they have more room to grow. It is a proposal worth testing carefully, with tax rules simple enough to understand and safeguards strong enough to prevent a corporate empire from dressing up as a corner store.

The test of this mandate will not be whether its title fits on a bumper sticker. The test will be whether it delivers measurable relief to real independent businesses without creating an elaborate new playground for tax avoidance.

SOURCES & FURTHER READING

01 · Internal Revenue Service — Self-Employed Individuals Tax Center; net profit and federal taxes. https://www.irs.gov/businesses/small-businesses-self-employed/self-employed-individuals-tax-center

02 · U.S. Census Bureau — The Nation's Small Business Landscape, May 2026; 2023 employer and nonemployer counts. https://www.census.gov/library/stories/2026/05/small-business-week.html

03 · Federal Deposit Insurance Corporation — Money Smart for Small Business, Module 13: Small Business Taxes, 2026. https://www.fdic.gov/consumer-resource-center/mssb-m13-ig.pdf

04 · Congressional Research Service — Tax Provisions in P.L. 119-21, the FY2025 Reconciliation Law, July 29, 2025. https://www.congress.gov/crs_external_products/R/PDF/R48611/R48611.4.pdf

05 · Internal Revenue Service — Self-Employment Tax (Social Security and Medicare Taxes); 2026 rules. https://www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes

06 · Internal Revenue Service — FAQs Regarding Aggregation Rules Under Section 448(c)(2). https://www.irs.gov/newsroom/faqs-regarding-the-aggregation-rules-under-section-448c2-that-apply-to-the-section-163j-small-business-exemption

07 · Congressional Research Service — Estimated Effects on Effective Tax Rates and Revenues of Increasing the 199A Deduction, September 24, 2026. https://www.everycrsreport.com/reports/IF13321.html

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