Talking Taxes in a Truck Episode 43: EY’s Dianne Mehany Decodes the Big Beautiful Bill
With the One Big Beautiful Bill Act (Working Families Tax Cut?) officially the law of the land, how are private companies responding? And where does tax policy go from here? We invited EY Private National Tax Leader Dianne Mehany to the podcast to discuss those questions and more. Dianne breaks down the key provisions and how they’re playing with clients (199A, SALT, estate tax). Later we discuss the legislative outlook, new country-by-country reporting requirements, and the advantages of a Ford F-150 over Uber.
House Hearing on CTA Regs, Database Purge
Earlier this week we covered the latest effort in Congress to make things right when it comes to the Corporate Transparency Act. That starts with deleting the beneficial owner database that’s not just unnecessary but actively puts millions of Americans’ sensitive information at risk.
Thanks in large part to Congressman Warren Davidson, who chairs the Financial Services Committee’s Subcommittee on National Security, Illicit Finance, and International Financial Institutions, we now have a bit more clarity on where things stand. At a hearing convened Tuesday, FinCEN Director Andrea Gacki offered the following response to a question from the panel:
Along with the resolution of this rule, we also intend to resolve questions around the data that we have collected, and dispose of data that is no longer legally required.
That statement comes on the heels of a letter sent by several dozen federal lawmakers calling for a data purge, and is the first time FinCEN has confirmed they’ll comply with the request.
In terms of the rule referenced by Director Gacki, readers will recall that FinCEN in March issued interim regulations that narrow the scope of the CTA’s reporting requirements to apply only to foreign entities and non-US citizens. Here’s Chair Davidson describing that action:
I want to highlight Beneficial Ownership disclosure. It seems that you’ve made a decision to collect information on US citizens differently than you do about non-citizens. And I think that’s important because our constitution limits the ability to presume that someone is guilty of a crime – you’re supposed to have probable cause and a warrant to get information from them. The beneficial ownership [rules] as drafted under the previous administration basically assumed every business was engaged in illicit finance.
That interim rule provided much needed relief and guidance to more than 30 million entities covered under this onerous statute, but still needs to be finalized. When can we expect that process to wrap up? Here’s Director Gacki again:
We intend to finalize this rule in the upcoming year – that’s our public commitment. We’re making sure we have administration guidance, and are working through a number of comments that we received to the interim final rule.
But what if there was a better approach to all of this that doesn’t rely on tweaking the flawed CTA statute? Congressman French Hill, who chairs the full committee, offered his thoughts:
Isn’t there a better way than creating a new database that can be breached or hacked…for 32 million small businesses? Every heating and cooling repairman out there with a truck and three employees is going to be captured by this. I think there’s a better way, which is simply using the existing Form 1065, which every pass-through entity has to file, and the resulting K-1s that are issued. And let me say in front of the whole committee: why was that not treated as a real possibility?
Number one, Ways & Means and Treasury said, we don’t want any more exceptions to sharing IRS data. Well, there are 35 or so now. And if this is so essential to national security, why wouldn’t this be a worthy, additional exception? Under the CTA, companies are required to file four key pieces of information – full legal name, date of birth, current address, and a unique identifier. And that’s all available, except for the birthdate, which I think we can figure out. I think this is a better approach.
We couldn’t agree more. The whole point of the CTA was to give law enforcement access to ownership information about illicit activity, not to create a sprawling new database sweeping in every family-owned business and local employer in the country.
So good news on multiple fronts when it comes to Treasury regulations and the database purge. It’s also encouraging to see lawmakers starting to rethink the Corporate Transparency Act from the ground up – not just trimming around the edges of a flawed statute, but exploring what a truly workable approach would look like. That means designing a system that protects Main Street businesses while focusing government resources on bad actors.
Purging the CTA Database
Couple important developments to report on the Corporate Transparency Act front.
First, around 90 members of Congress yesterday sent a letter to Treasury Secretary Scott Bessent urging that the CTA database be purged entirely. It makes clear:
As Congress works to provide long-term relief from the CTA, we urge the Department of Treasury and FinCEN to promulgate a final rule that exempts U.S. businesses from the CTA. We also acknowledge that millions of U.S. small businesses have already registered with FinCEN. This data must be immediately destroyed to protect the privacy of small business owners.
The letter underscores the reality that while FinCEN has pulled back on requiring new filings by domestic entities, the damage won’t be undone until existing data is wiped clean. Otherwise, Main Street businesses will remain exposed to risks they never should have faced in the first place.
By way of brief background, the Treasury Department earlier this year made the critical decision to limit the CTA’s reach to foreign entities only. That change was both necessary and overdue. Under the original statute, 32 million American businesses were required to file intrusive beneficial ownership reports or face felony charges. These are family-owned companies, community employers, and entrepreneurs who never should have been swept into a regime meant to target terrorists and international criminals.
Yet before Treasury corrected course, millions of small business entities had already filed reports with FinCEN – an extraordinary compliance burden imposed under threat of criminal penalties. That database still exists today, filled with personal information of law-abiding Main Street businesses. Protecting those businesses means taking the next logical step: purging the database.
The House Appropriations Committee also recently took up this issue head on. In the report accompanying its FY2026 FSGG bill, the Committee included new language directing FinCEN to provide Congress with a report within 90 days on the status of the beneficial ownership information already collected:
Because more than 16 million domestic small business entities submitted beneficial ownership information to FinCEN prior to its decision to require only foreign entity reporting, the Committee is concerned about the use of the existing beneficial ownership information.
That language sends a clear signal: now that they are are rightly exempt from the CTA, the information FinCEN collected from 16 million Main Street businesses should not be left sitting on a server waiting for a cybercriminal to strike.
The renewed focus on the existing database is exactly where the debate belongs. It’s one thing to win prospective relief; it’s another to ensure that the millions who already complied under threat of penalties are no longer left vulnerable.
So progress on two fronts, with a broad coalition of elected officials calling for a full purge. Now Treasury needs to act. Deleting the database is not just good policy, it’s common sense. If Main Street businesses no longer need to file, then their personal information should not remain in government hands.
A Sustainable Alternative to Tariffs
One of the nice things about tax policy is that it’s constrained by math. You can push any tax policy you want, but at some point the underlying math will win out.
So while Commerce Secretary Howard Lutnick might argue that we could replace our income tax with tariff receipts, the math says something else. Here’s The Spectator on the numbers:
…Americans reported $15 trillion in income in 2021, on which they paid $2.2 trillion in income taxes for an average tax rate of 14.9 percent. In the same year, goods imports were $2.8 trillion, generating $80 billion in revenue on an effective tax rate of 2.9 percent. The tariff rate would need to be much, much higher to replace lost income tax revenue, so high that it would easily destroy the import business upon which the taxes are collected.
Those “much higher” tariffs would need to be 60 or 70 percent of the imported good’s value. That’s not gonna happen.
An Alternative to Tariffs
What could happen, however, is an alternative to tariffs that encourages domestic production and job creation without punishing consumers. Border‑adjusted taxes (BATs) offer a smarter, fairer, and WTO‑compliant framework for trade reform.
A BAT exempts exports from tax while taxing imports—shifting the focus to where goods are consumed, not where they’re made. A recent Brookings analysis highlights why this framework is more appealing than traditional tariffs:
- Revenue & Growth vs. Protectionism: Brookings estimates that implementing a symmetric 21% import tax and offsetting export subsidy could generate approximately $1.4 trillion over 10 years—while shrinking the trade deficit by nearly one-third and boosting GDP accordingly.
- Economically & Legally Sound: A BAT aligns more closely with international norms and avoids the trade wars typical of tariffs. As Brookings puts it, pairing tariffs with export subsidies “would be justifiable under international trade rules, avoid costly trade wars, and limit effects on consumer prices and inflation.”
- Targets Distorted Incentives: Even with the adoption of the TCJA, our tax system still rewards profit-shifting and offshoring. BAT flips the script. By taxing consumption, BAT would remove incentives to reallocate profits abroad. As they argue, “by subsidizing the full value of exports and taxing the full value of imports, these price manipulations no longer affect U.S. taxes.”
Brookings makes clear that a border-adjustment approach not only reduces economic distortions—it also avoids punishing businesses that both import and export. Roughly 84% of exporters also import, so a symmetric BAT would largely neutralize net financial burdens for them. A well-designed BAT “would reduce the trade gap, increase GDP, raise significant revenue, and make America the world’s best place to invest and build businesses.”
Past Debates
So the math on the BAT works out. The politics do too. Tax policy folks might remember that a BAT was vigorously debated in the lead up to the Tax Cuts and Jobs Act. It was seen as a constructive means of raising revenue while eliminating incentives for off-shoring production activities and headquarters. If the tax depends on where you sell, there’s no incentive to move things off-shore.
The effort ultimately failed, however, in the face of fierce opposition from the retail industry. Confronted with no alternative taxes, they argued incorrectly that a BAT would raise prices on consumers and hurt their businesses.
Well, we now have a very clear idea of what the alternatives might look like. It’s high tariffs combined with the GILTI, the BEAT, and the FDII. These are real policies imposing real costs on industries and consumers right now.
The political equation here is simple: Which do you prefer? A balanced policy that encourages domestic investment and jobs while raising revenue for the Treasury, or a grab bag of complicated and expensive policies that result in higher prices on families and businesses alike?
Seems like a pretty easy choice.
Bottom Line
Tariffs are a blunt instrument loaded with unintended consequences. And while the recently-announced EU trade deal is a positive development, it doesn’t change the underlying instability of tariffs as a revenue source.
In contrast, a border-adjusted tax offers a systematic, trade-neutral, and legally defensible approach—designed to strengthen domestic production, restore growth, and align U.S. tax policy with global standards.
Both the math and the politics work out here. Adopting a BAT would reduce reliance on politically fraught tariffs, stabilize planning for businesses, and make the U.S. a pro-investment, pro-export economic environment. It’s time to dust off the old BAT debate and see how it looks in the new world of GILTI and high tariffs.
Horizontal Equity and Section 199A
Thanks to the OB3, Section 199A is now a permanent fixture of the Tax Code. Millions of small and family-owned businesses can now stop worrying about their taxes and refocus on growing and hiring. It’s a good thing that means more investment and jobs on Main Street.
That doesn’t mean the debate is over, however.
A Congressional Research Service (CRS) report, for example, included a nice overview of the provision, but also made a point about horizontal equity we’ve seen previously:
The deduction may diminish horizontal tax equity in two ways. First, it taxes wage earners and pass-through business owners with similar income at different rates, even though there is no apparent economic justification for such disparate treatment.
To illustrate this point, assume that a sole proprietor and an employee have the same taxable income ($100,000 in 2024), and that the former’s income comes solely from QBI for a retail business she owns and the latter’s income is from wages only. Both are single filers. Under the federal individual income tax rate schedules for 2024, the sole proprietor is eligible for the maximum Section 199A deduction, which reduces her top marginal tax rate from 22% to 17.6% (22% x 0.8). By contrast, because the employee cannot claim the deduction, her income is taxed at 22.0%. Under pre-TCJA tax law, both taxpayers would have been taxed at the same top marginal rate.
In other words, two similarly situated taxpayers (horizontal, if you will) are treated differently because of Section 199A. But are they really similar? Is the wage earner really at a disadvantage? Finally, is this the correct comparison?
The answer to all these questions is an emphatic “No”. Treating wage earners and business owners as equivalent ignores the fundamental differences in how their income is generated and the ongoing obligations they face.
Regarding who pays what, we responded to a similarly misplaced comparison a few years back but it’s worth revisiting. The CRS report identifies Section 199A as an advantage but ignores a long list of tax benefits enjoyed by employees, including employer-provided health insurance and employer-paid retirement contributions. Employees also get half of their payroll taxes paid by their employer.
Pass-through owners, on the other hand, pay the full SECA tax and have less access to tax-advantaged benefits. When they do get those benefits, well, they are the one paying for them, aren’t they? Take all that into account and the advantage conferred by Section 199A simply disappears. In many scenarios, the business owner pays a higher effective rate, even with 199A.
The real world bears this out. Many experts worried (see here, here, here, and here) 199A would lead to a wave of employees quitting their jobs to become independent contractors. IRS data and independent studies make clear that never happened. For example, here’s the key passage from a 2021 NBER paper:
Taken together, our analyses of contractor transitions show no evidence of a short-run increase in independent contracting as a result of Section 199A…nor do we see a rise in individuals becoming contractors (or forming other sole proprietorships) more generally. Thus, using several measures, we do not find any evidence that Section 199A has led to increased contractor work relative to wage employment.
Finally, we should emphasize that this is all beside the point. The local hardware store owner doesn’t compete with his employees, he competes with Home Depot. That is the horizontal equity question that should challenge the experts – how do you ensure that Main Street businesses paying 37 percent top rates are not disadvantaged when competing against their larger, public competition paying just 21 percent?
The answer is 199A. As our EY study makes clear, with it there’s rough parity. Without it, public C corporations will continue to use their tax and financial advantages to accelerate the economic consolidation already taking place across the country – raising cheap capital, buying successful family businesses, and stripping our communities of the economic power and vitality they need.