House Bill Proposes $820 Billion Permanent Pass-Through Tax Deduction, Drawing Criticism

Washington D.C. – Congress is currently debating the future of the Section 199A pass-through business income deduction, a key provision of the 2017 Tax Cuts and Jobs Act (TCJA) set to expire at the end of 2025. The House of Representatives recently passed a bill that would make this deduction permanent and increase it from 20% to 23%, a move projected to cost $820 billion over the next decade. This legislative effort aims to provide tax certainty for millions of businesses, but it faces significant opposition from critics who argue it is fiscally irresponsible and disproportionately benefits the wealthy.

The Section 199A deduction allows owners of pass-through entities like S corporations, partnerships, and sole proprietorships to deduct up to 20% of their qualified business income. Proponents, including the U.S. Chamber of Commerce and the National Association of Manufacturers, contend that extending the deduction is crucial for small and medium-sized businesses, which comprise over 95% of all U.S. businesses and employ a majority of the private sector workforce. They argue it fosters investment, job creation, and maintains tax parity with C corporations, whose tax rate was permanently reduced to 21% by the TCJA.

However, the proposal has drawn sharp criticism. As stated by Bloomberg Opinion's @foxjust, making the deduction permanent is "a bad idea." Critics, including the Center on Budget and Policy Priorities, label it a "deeply unequal tax cut" that primarily benefits millionaire business owners, citing analyses that show a significant portion of the tax savings flow to high-income taxpayers. They also argue that the deduction adds complexity to the tax code and has shown little evidence of stimulating real economic activity, such as physical investment or wage growth for non-owners.

The House version of the "One, Big, Beautiful" reconciliation bill not only makes the deduction permanent but also increases its rate, leading to the substantial $820 billion revenue reduction estimate by the Joint Committee on Taxation. In contrast, the Senate's version of the bill proposes making the deduction permanent at the current 20% rate, which would still result in a significant, though lower, revenue loss of approximately $736 billion over the same period. The debate highlights a fundamental disagreement over tax policy priorities and the economic impact of extending a measure that has become a cornerstone for many small and large private businesses.