More than 100 business groups came out in support today of new legislation to make permanent the 20-percent pass-through deduction. Introduced by Senator Steve Daines (MT), the “Main Street Certainty Act of 2019” — S. 1149 — is the companion bill to H.R. 216, bipartisan legislation introduced by Representatives Jason Smith (MO) and Henry Cuellar (TX) in the House of Representatives.

The new, 20-percent deduction was a key part of the big tax reform bill enacted back in 2017. The deduction was designed to balance out the tax treatment of pass-through businesses with the lower, 21-percent tax rate paid by C corporations. As our EY study from last year made clear, the deduction works to level the playing field, but only for those business that get the full deduction.

The challenge is that the deduction is scheduled to expire in 2026, at which time taxes on pass-through businesses would go up. This tax hike is due to the fact that while most of the individual provisions in tax reform, including the Section 199A deduction, expire beginning 2026, many of the revenue raising provisions applied to the business community remain in place, including the new cap on interest deductibility and the repeal of the old manufacturing deduction.

The Daines-Smith-Cuellar bill would prevent this tax hike on Main Street businesses.

The letter, led by our Parity for Main Street Employers coalition, makes the case for permanence and was signed by one hundred and three national trade associations, including the U.S. Chamber, the National Federation of Independent Businesses, and the American Farm Bureau:

Despite the economic importance of the pass-through sector, the Section 199A deduction is scheduled to sunset at the end of 2025. Repealing this sunset will benefit millions of pass-through businesses, leading to higher economic growth and more employment. Economists Robert Barro and Jason Furman found that making the pass-through deduction permanent would result in a significant increase in economic growth. The American Action Forum found similar results.

You can read the entire letter here.

Also released today is a “whiteboard” video designed by the Main Street Employer coalition to illustrate the challenge faced by pass-through businesses.  The whiteboard makes clear that while tax reform is complicated, the challenge for pass-through businesses is simple — make the 199A deduction permanent!

The legislation, the letter, and the whiteboard are all part of a broader, long-term advocacy campaign by the Main Street business community to make the 199A deduction permanent. As the number of letter signatories attests, there is broad-based support among the business community to make this provision permanent, and it’s going to be the number one priority of the S Corporation Association moving forward.