Senator Ron Wyden, D-Ore., Speaks during a Senate Finance Committee nomination hearing for Deputy Treasury Secretary Adewale Adeyemo on February 23, 2021.
Greg Nash | Swimming pool | Reuters
Senate Finance Committee Chairman Ron Wyden, D-Ore., On Tuesday released a bill to revise a controversial deduction for certain businesses, which was part of Republicans sweeping 2017 tax legislation.
Currently, the so-called qualifying business income deduction, also known as 199A, allows certain businesses, such as sole proprietorships, partnerships, and S corporations, to deduct up to 20% of eligible income.
The bill would phase out the tax break for households earning more than $ 400,000 a year, in line with President Joe Biden’s campaign pledge, Wyden told reporters on an appeal.
At the same time, the proposal also extends eligibility for delisting by removing “extraordinarily arbitrary restrictions” on eligible industries, he said.
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In 2021, those earning less than $ 164,900 or married couples reporting together earning less than $ 329,800 may be eligible for the full 20% deduction.
However, households with incomes above these thresholds can only claim part of the deduction and certain types of businesses lose their eligibility altogether.
For example, so-called trades or service businesses – which include healthcare, law, financial services, and more – don’t qualify above certain income levels.
The phase-out of Wyden starts above $ 400,000, completely eliminating the deduction at $ 500,000.
âThere is an opportunity here to generate significant revenue while not raising taxes for Main Street small businesses,â Wyden said.
The proposal comes as Democrats continue to figure out how to pay for priorities, such as education, health insurance, child care, paid time off, green energy and more.
President Joe Biden is open to new ideas on how to raise taxes for the rich, as long as it doesn’t affect those who earn less than $ 400,000, according to a White House official.
Who benefits from the deduction
Although U.S. transfer companies include large and small businesses, Wyden pointed out how tax relief can disproportionately benefit wealthy Americans.
âHalf of the monetary benefit goes to millionaires and because the benefit is so skewed upward, many small business owners on Main Street have actually been left out,â he said.
High-income households receive a larger share of the corporate tax break than the middle class, according to a report from the Center on Budget and Policy Priorities.
In addition, 61% of benefits could go to the richest 1% of families by 2024, according to a report by the Joint Commission on Taxation.
While the bill enjoys the support of some small business groups, the proposal may be rejected by others, as well as by Republican lawmakers.
The current deduction will expire after 2025 without an extension from Congress.