On July 27, Rep. Lloyd Smucker (R-PA), a key member of the tax-writing House Ways & Means Committee, introduced legislation to make permanent the 20 percent deduction for noncorporate business income. The bipartisan bill, H.R.4721, the Main Street Tax Certainty Act, has 99 cosponsors.
Section 199A, enacted in 2017 in the Tax Cuts and Jobs Act (TCJA), is scheduled to expire in 2026. It provides for a 20 percent deduction for qualified noncorporate business income. It is a deduction available to pass-through businesses, including many financial advisors—those who operate as sole proprietors, partnerships, or Subchapter S corporations. It was designed to provide parity with corporations, which got a 21 percent tax rate (down from 35 percent) in the TCJA, in tax relief for these largely small businesses.
Companion legislation, S.1706, is pending in the Senate. S.1706, also named the Main Street Tax Certainty Act, was introduced in May by Sen. Steve Daines (R-MT). There are 19 Republican Senate cosponsors of the bill.
Prospects: There is little to no chance that this bill will be enacted into law this year—Section 199A does not expire until 2026, and so there is no real urgency about enacting it “now.” However, it has a decent chance for enactment in 2025, if not 2024, because a fair number of Democrats might support Section 199A, particularly if in exchange for a Democratic priority, for instance, expansion of the child tax credit.
One element that could change this prediction is if a future Congress raises the corporate tax rate from its current 21 percent. Since Section 199A was designed to provide parity in tax relief between corporate and pass-through forms of doing business, if the corporate rate goes up, the structure of Section 199A could change. This is likely going to be an issue if Democrats wrest control of the House from the GOP in the 2024 elections, especially if the Senate remains under Democrats’ control and if President Biden wins reelection.
NAIFA Staff Contact: Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.