The legislation would phase out the 20% small business tax deduction for taxpayers with incomes over $400,000, while eliminating it altogether for those with incomes exceeding $500,000.
Earlier this week, U.S. Senate Committee on Finance Chairman Ron Wyden (D-Oregon) introduced legislation that would phase out the 20% small business tax deduction for taxpayers with incomes over $400,000, while eliminating it altogether for those with incomes exceeding $500,000. This deduction has been widely-used by independent insurance agencies which are organized as pass-throughs, and the Big “I" will strongly oppose any efforts to limit its application to our small business members, particularly during challenging economic times as a result of the pandemic. Big “I" members of various income levels have put the tax savings to good use, reinvesting in their businesses and their employees.
Although changes to the small business tax deduction have been left out of recent tax proposals released by the Biden administration, several congressional Democrats have floated making changes to the deduction in order to pay for new spending proposals. However, Chairman Wyden is the first to introduce legislation.
The introduction of the legislation comes at a concerning time as congressional Democrats continue to push forward on a $3.5 trillion dollar spending package.
In June, when Sen. Wyden originally signaled his intention to introduce legislation to phase out the small business deduction, the Big “I" joined more than 100 other trade associations in sending a letter to Capitol Hill to voice opposition to any potential legislation that would weaken the Section 199A pass-through tax deduction that was passed as part of the Tax Cuts and Jobs Act in 2017.
In the letter addressed to leaders of the Senate Committee on Finance and the U.S. House Ways and Means Committee, the Big “I" and other organizations note our strong opposition to any reductions or repeal of the 20% deduction for qualified business income under Section 199A, including phasing out the deduction above certain income thresholds.
The letter also states that without the deduction, individually- and family-owned Main Street businesses would pay significantly higher taxes, putting them at a competitive disadvantage, accelerating the economic consolidation taking place in our economy. Finally, the letter makes clear the importance of the bipartisan legislation, H.R. 1381 and S. 480, the “Main Street Tax Certainty Act," which would make the deduction permanent.
As Congress and the Biden administration and Congress continue to discuss tax policy and how to pay for their spending proposals, the Big “I" will continue to advocate on behalf of its members and provide updates in the weekly News & Views e-newsletter.
Wyatt Stewart is Big “I" assistant vice president of federal government affairs.