On January 3, Rep. Andy Biggs (R-AZ) introduced legislation that would repeal the limits on the kinds of businesses that are eligible for the section 199A deduction for qualifying noncorporate business income. The bill would also repeal the estate tax while retaining the step up in basis for assets passing to heirs after the decedent’s death.

H.R.110, the Small Business Prosperity Act, would expand the full benefit of the section 199A deduction to all pass-through businesses (i.e., Subchapter S corporations, partnerships, and sole proprietorships). Current law limits eligibility for the deduction for financial service and consulting businesses, among others.

The bill also completely repeals the entire estate tax, but specifies that the law shall retain the rules regarding step up in basis for heirs receiving bequests.

Prospects: Currently, there appears to be little chance that this bill will be enacted into law. This is in part because it is likely to generate a substantial revenue loss and in part because of the “competition” it faces from other tax-cutting proposals.

However, it may serve as a springboard for discussion about if and how section 199A can be modified, especially if the corporate tax rate is reduced. This is because section 199A was created in 2016 to provide parity in tax relief for noncorporate businesses as compared to corporations. With respect to the estate tax, there is significant support among GOP lawmakers for repeal of the estate tax—but in past estate tax repeal proposals, full repeal has been coupled with a shift to carryover basis (thus making realized gains from inherited assets subject to income tax imposed on the heirs). This broader repeal could hurt chances for acceptance of the proposal.

NAIFA Staff Contact: Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.