More than 80 business groups signed on to support legislation making permanent the 20-percent pass-through deduction (Section 199A). The bill was sponsored by Steve Daines (R-MT) in the Senate and Jason Smith (R-MO) and Henry Cuellar (D-TX) in the House.

The 199A deduction was a key part of the Tax Cuts and Jobs Act, enacted 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 the time made clear, the deduction works to help level the playing field, but only for those business that get the full deduction.

The challenge is that the deduction is scheduled to expire at the end of 2025, at which time taxes on pass-through businesses will go up. To add insult to injury, 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 legislation introduced today would prevent this tax hike on Main Street businesses. It would also provide certainty to tens of thousands of businesses who have been hit hardest by the COVID-19 pandemic, and for whom the past year has been anything but certain.

The letter, led by our Main Street Employers coalition, makes the case for permanence and was signed by over eighty national trade associations, including the U.S. Chamber of Commerce, American Farm Bureau Federation, NFIB, and Associated General Contractors of America, to name a few. As it states:

Individually- and family-owned businesses are the backbone of the American economy – they employ the majority of private-sector workers and represent 95 percent of all businesses.  Despite the economic importance of the pass-through sector, however, Section 199A is scheduled to sunset at the end of 2025.

 These businesses have been hard hit by the COVID-19 pandemic and resulting shutdown policies.  According to Yelp’s Local Economic Impact Report, a majority of businesses closed during the pandemic will not reopen, while small business revenues overall have declined by more than 30 percent in the past year. 

You can read the entire letter here.