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Business Community Rallies Around Permanent 20% Pass-through Deduction

Wed, April 10, 2019 7:50 AM | CIRT News (Administrator)

Over 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 (R-MT), the "Main Street Certainty Act of 2019" (S. 1149) -- is the companion bill to H.R. 216, bipartisan legislation introduced by Reps. Jason Smith (R-MO) and Henry Cuellar (D-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 an 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 bills would prevent this tax hike on Main Street businesses.

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