The House adopted the One Big Beautiful Bill Act (yes, that is the official title) by a vote of 215-214 this morning. This is good news for Main Street businesses, who have a lot at stake in this effort – failure by Congress to act would result in one of the larger tax hikes in history, so success is essential here.

Pro-Main Street provisions in the bill include making permanent the lower rates on pass-through income, making permanent and expanding the 199A pass-through deduction, and making permanent and expanding the estate tax exemptions that benefit family businesses. The bill would reduce taxes on Main Street businesses when they earn profits and when they are passed on from one generation to the next.

Next steps include all the House members and staff going home to sleep, followed by a week of Memorial Day recess, followed by Senate consideration of the bill. Exactly when the Senate takes up the bill is unclear, but the pressure is to move quickly to give both chambers time to resolve any differences and adopt the final product before the 4th of July.  An aggressive timeline, but today’s action makes that possible.

Regarding any Senate changes, expect to see them.  As Tax Notes reported earlier this week:

Republican senators are sending an early warning to their House counterparts that they plan to take a red pen to the House reconciliation bill — including its $3.8 trillion tax title — when it arrives in the Senate….

“Anybody that thinks that we’re just going to rubber-stamp it and pass it out needs to understand there’s more work to do,” Senate Finance Committee member Thom Tillis, R-N.C., said. “The Senate will put its work on it once we get it over here.”

When asked if there was anything in the House tax bill he’d like to change, Sen. John Kennedy, R-La., responded, “A lot.”

S-Corp will be meeting with Republican Senate offices starting today to press for specific improvements to the House bill, including:

  • Improve the SALT PTET Provisions: S-Corp has always opposed the Specified Services Trade or Business (SSTB) exclusion to the 199A deduction (as opposed to the other 199A guardrails which we supported) so extending this policy to our SALT Parity bills is an easy “No”. Why are some pass-through jobs more equal than others? We’d like to kill the whole thing. Failing that, making the SSTB provision comprehensible will be a priority.
  • Expand 199A to Include Foreign Income: Unlike the 21-percent corporate tax rate, pass-through income that qualifies for the 199A deduction is limited. For example, Qualified Business Income (QBI) does not include foreign-sourced income. There’s no apparent policy reason for this exclusion and it means pass-throughs pay rates up to 37 percent on their foreign income. S-Corp has advocated for including foreign income in QBI since the beginning.
  • Zero-out 199A Deficit Accounts: A little understood limitation to the 199A deduction are its so-called deficit accounts. These accounting devices require businesses to keep track of any losses within the QBI category and then run through those accumulated losses before they can benefit from the 199A deduction. Following COVID, the percentage of S corporations in a loss position was about 30 percent, so this is a big deal that will prevent millions of businesses from benefitting from the extended 199A deduction.
  • Strike the Excess Loss Provision: We have written about this provision many times (here, here, here).  It is a poorly thought out (and poorly scored) provision that treats pass-through owners worse than their C corporation competition. Rather than making this policy permanent, the Senate should repeal it outright.

The House adoption of the Big Beautiful Bill is a huge win for Main Street, but there remains work to be done. S-Corp looks forward to quick consideration of the bill in the Senate, and we plan to work with our Main Street friends to produce a bill that benefits all S corporations and other pass-through businesses.