PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Small Business Community Rallies to Support Pass-Through Deduction

By at 22 June, 2021, 2:24 pm

SBE Council Joins Effort Led by the S-Corp Association in Support of 20% Small Business Deduction

More than 100 trade associations today voiced their opposition to proposed legislation which would weaken the Section 199A pass-through deduction.

The provision is an essential part of the Tax Code, and helps individually- and family-owned Main Street businesses remain competitive in an era of economic consolidation and concentration. Section 199A has also proven critical in enabling those businesses which were hardest hit during the pandemic to survive.

As the letter released today makes clear, rolling back or otherwise limiting the deduction would have a severely detrimental effect on the 95 percent of American businesses organized as pass-throughs.

Below is the comprehensive response from the business community:

The undersigned trade associations represent millions of individually- and family-owned businesses operating in every sector of the American economy. We write to voice our strong opposition to any reductions or repeal of the 20-percent deduction for qualified business income under Section 199A, including phasing out the deduction above certain income thresholds.

Section 199A is an essential part of the Tax Code. Without it, individually- and family-owned Main Street businesses would pay significantly higher taxes, putting them at a competitive disadvantage and accelerating the economic consolidation taking place in our economy.

Individually- and family-owned businesses organized as pass-throughs are the backbone of the economy. They employ the majority of private-sector workers and comprise 95 percent of all businesses. Nearly 40 percent of these businesses closed their doors during the COVID pandemic, putting their owners and employees at risk. Section 199A provides critical tax relief to these businesses, enabling them to keep more of what they earn to reinvest in their employees and the communities they serve.

To ensure this focus on job creation and investment, Section 199A limits the deduction for larger pass-through businesses to those that have significant employment and investment levels. If a large pass-through business doesn’t create jobs and invest in its community, it doesn’t get the deduction. Section 199A’s laser focus on real businesses with real employees helped motivate the introduction of bipartisan legislation (H.R. 1381 and S. 480) to make the deduction permanent.

Proposals to limit or repeal the deduction would hurt Main Street businesses and result in fewer jobs, lower wages, and less economic growth in thousands of communities across the country. Such changes would amount to a direct tax hike on America’s Main Street employers, a key reason why the tax plan released by the White House in March left the deduction fully intact.

For these reasons, we support the Biden administration’s decision to leave the Section 199A deduction intact and we strongly oppose any attempt to cap or repeal it by Congress.

With Section 199A scheduled to sunset at the end of 2025, and with businesses still struggling due to the effects of the pandemic, Congress should be working to enhance – rather than roll back or weaken – this critical provision.

Click here to download a copy of the letter. 

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