With this morning’s passage of the budget resolution in the House, it’s full steam ahead on the tax policy front. Fortunately, our friends on the small business committees are focused on what’s important – Congress needs to act now to prevent a massive tax hike on millions of Main Street businesses.
That focus was on full display during a House and Senate joint hearing entitled, “Keeping Taxes Low for Small Businesses” which featured two witnesses from our Main Street Employers Coalition.
Here’s Tom Click – president and cofounder of Patriot Industries, a Virginia-based manufacturer – with more on that dynamic:
One of the most impactful provisions was the 20% deduction for small businesses, which gave pass-through entities like ours the ability to compete on a level playing field with larger corporations. This crucial tax relief enabled us to grow at a faster pace and reinvest in our company and employees. The Section 199A deduction is a critical component of the TCJA that ensures Main Street businesses can remain competitive in an increasingly challenging environment.
…For companies like ours, which employ workers, invest in communities, and contribute to local economies, this deduction has been instrumental in supporting job creation, capital investment, and overall business growth. If Section 199A is allowed to expire, the consequences will be severe for countless small and family-owned businesses across the country like ours. Many firms in our industry already operate on thin margins, and the sudden tax increase resulting from the loss of this deduction would mean a 20 percent tax increase at a time of great uncertainty in the economy. Worse yet, this tax hike would be borne exclusively by pass-through business – which currently supply more than 6 out of every 10 jobs nationwide – and would create a ripple effect across the American economy as a whole.
How would things play out if Congress failed to act? Here’s Tom again with a bleak analysis:
Finally, the expiration of Section 199A would no doubt force many businesses to be sold to larger corporations, thus accelerating the ongoing consolidation of economic power and shifting control away from Main Street and further into the hands of a few dominant corporations. These sales would be triggered not by market inefficiencies or poor business practices, but simply due to an uneven tax code that disproportionately benefits Wall Street over Main Street. This would weaken local economies, reduce competition, and ultimately harm American workers by limiting job opportunities and wage growth.
Later the panel heard from Jerry Akers, a serial entrepreneur and current owner of multiple franchise operations:
Much like the rest of small business owners, the 199A deduction has enabled me to increase investment in new equipment, technology, and facilities, driving growth and innovation, while the extra financial breathing room has allowed me to hire more employees, and provide better benefits to existing team members.
More importantly, this deduction has helped level the playing field, allowing businesses like mine to compete with larger corporations, and provide a level of financial stability that has been very valuable. The thought of these hard-earned gains being jeopardized is deeply unsettling. It’s not just about numbers; it’s about the livelihoods of families, the vitality of communities, and the spirit of entrepreneurship.
As Tom, Jerry, and the other witnesses made clear, Section 199A is not a “loophole” or “giveaway” – rather, it’s a key component of a tax system that recognizes the unique structure and contributions of pass-through businesses. These firms don’t have access to the capital markets like their publicly-traded counterparts. They must rely on their own profits to reinvest, grow, and hire.
As Congress deliberates on the current tax package, we are encouraged that lawmakers continue to focus on Section 199A and its importance to the economy. We look forward to more opportunities to showcase these Main Street success stories and get the message across.