Rep. Lloyd Smucker (R-PA) introduced the Main Street Tax Certainty Act, H.R. 4721, legislation which would permanently extend Section 199A of the Internal Revenue Code, which is slated to expire in 2025. Smucker’s bipartisan legislation is cosponsored by 92 Members and is supported by all Republican Members of the Ways & Means Committee.

Section 199A, which was adopted as part of the landmark 2017 Tax Cuts and Jobs Act, allows for a 20 percent deduction of qualified income for pass-through businesses. Most small business are structured as a pass-through and this section was included in the Tax Cuts and Jobs Act to promote equity in America’s tax code between small businesses on main street with larger corporations.

Qualified business income is defined as the net amount of qualified items of income, gain, deduction and loss with respect to any trade or business, excluding capital gains or losses, dividends, interest income, or income earned outside the U.S.

In Favor:

According to bill sponsors, pass-through businesses represent 98 percent of all businesses and employ approximately 50 percent of American workers. They argue the “Main Street Tax Certainty Act” would help grow the economy and provide much-needed certainty for small business job creators by making permanent the 20 percent pass-through deduction. Absent congressional action, these businesses will face a massive tax hike and will likely be forced to reduce wages or eliminate jobs.

“Small businesses are the engine of America’s economy. The Tax Cuts and Jobs Act, in particular Section 199A, unleashed a robust economy where small businesses invested in their communities, creating more jobs and business opportunities. Providing permanency to this critical pro-growth tax policy will ensure small businesses continue to have tax parity with corporations and will strengthen main streets across the nation. I thank my colleagues for supporting the Main Street Tax Certainty Act and will continue to fight for its passage,” said Rep. Lloyd Smucker (R-PA).

Section 199A allows up to a 20 percent pass-through income deduction for small businesses organized as sole proprietorships, partnerships, S corporations, trusts, or estates, or income from qualified REIT dividends and income from publicly traded partnerships.

A recent study from the S Corporation Association, which represents individual and family-owned businesses, reports that tax parity between small businesses organized as pass-through entities and corporations will end if Section 199A ceases to exist. Additionally, another report from the S Corporation Association indicates “private companies organized as pass-through businesses employ 58 percent of all private sector workers.”

Against:

The deduction costs roughly $50 billion a year through 2025 (when it is scheduled to expire, along with other provisions of the 2017 tax law) and its benefits are heavily tilted towards the wealthy; around 61 percent of its benefits will go to the top 1 percent of households in 2024, according to the Joint Committee on Taxation (JCT). Wealthy households benefit the most because they receive most of the pass-through income, they get a much larger share of their income from pass-throughs than the middle class does, and they receive the largest tax break per dollar of income deducted (since they are in the top income brackets). President Biden’s proposal during the campaign to phase out the deduction for households with more than $400,000 in income would raise $143 billion over ten years, almost exclusively from the top 1 percent, the Tax Policy Center (TPC) estimated.

Do you think Congress should pass H.R. 4721, the Main Street Tax Certainty Act?