Senator Ron Wyden, D-Ore., Speaks during a hearing on the Senate Finance Committee’s nomination for Nominee Deputy Treasury Secretary Adewale Adeyemo on February 23, 2021.
Greg Nash | Swimming pool | Reuters
Senate finance committee chairman Ron Wyden, D-Ore., Released a bill on Tuesday to revise a controversial corporate deduction that was part of the 2017 Republicans’ sweeping tax legislation.
Currently, what is known as the Qualified Operating Income Deduction, also known as 199A, allows certain businesses, such as sole proprietorships, partnerships, and S corporations to write off up to 20% of net income.
The bill would progressively abolish tax breaks for households earning more than $ 400,000 a year and deliver on President Joe Biden’s election promise, Wyden told reporters in a phone call.
At the same time, the proposal also expands the eligibility for depreciation by removing “extremely arbitrary restrictions” on which industries qualify, he said.
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In 2021, individuals earning less than $ 164,900 or married couples filing together who earn less than $ 329,800 may be eligible for the full 20% deduction.
However, households earning above these thresholds can only claim part of the deduction and some types of businesses forfeit their eligibility altogether.
For example, so-called service professions or companies – which include health, law, financial services and more – do not qualify above certain income levels.
Wyden’s exit starts at over $ 400,000, eliminating the $ 500,000 deduction entirely.
Here is an opportunity to generate significant income while not raising taxes for small businesses on Main Street.
Senator Ron Wyden
Chairman of the Senate Finance Committee
“There is an opportunity here to generate significant income while not raising taxes for small businesses on Main Street,” said Wyden.
The proposal comes as Democrats continue to seek to pay for priorities like education, health insurance, childcare, paid vacation, green energy, and more.
President Joe Biden is open to new ideas on how taxes can be increased on the rich as long as it doesn’t affect those on less than $ 400,000, according to a White House official.
Who will benefit from the deduction
Although U.S. pass-through businesses include small and large companies, Wyden pointed out that the tax break could benefit wealthy Americans disproportionately.
“Half of the money won goes to millionaires, and because the upside is so upside down, many of the small business owners on Main Street have actually been foreclosed,” he said.
Households with higher incomes receive a larger share of the passed through business tax break than the middle class, according to a report by the Center on Budget and Policy Priorities.
In addition, according to a report by the Joint Tax Committee, 61% of benefits could go to the top 1% of families by 2024.
Although some small business groups support the bill, others as well as Republican lawmakers can oppose the bill.
“Sen. Wyden’s proposal to limit small business withholding and raise small business taxes is the wrong plan at the wrong time,” said Kevin Kuhlman, vice president of government relations for the National Federation of Independent Businesses in Nashville.
A reduction in the qualified income withholding would directly affect the ability of small businesses to hire people, invest in their businesses, increase compensation and threaten the fragile economic recovery, he said.
The current deduction will expire after 2025 without an extension by Congress.